Sri Lanka’s external debt stock is inching upward again raising fresh questions about whether the National People’s Power (NPP) Government can hold the line on International Monetary Fund (IMF) benchmarks while navigating the final stretch of its historic restructuring.
According to the Treasury’s Quarterly Debt Bulletin for December 2025, outstanding Government external debt rose to $ 37.66 billion by 31 December, up $ 425 million from $ 37.24 billion at end-September. Though modest in quarterly terms, the uptick comes at a sensitive moment when fiscal consolidation and debt sustainability targets remain under close IMF scrutiny.
Total gross public debt stood at $ 103.6 billion at year-end, down from $ 106.8 billion in September reflecting restructuring adjustments and currency effects. Of this, central Government debt accounted for $ 100.3 billion, while guaranteed State-Owned Enterprise (SOE) debt fell to $ 3.48 billion from $ 4.4 billion. Provincial and local government debt remained marginal at $ 21 million.
In composition, multilateral lenders now account for 38% of Government external debt ($ 14.3 billion), commercial borrowings 34% ($ 12.7 billion), and bilateral creditors 28% ($ 10.7 billion). International Sovereign Bonds (ISBs) alone represent $ 10.25 billion of the commercial segment.
Roughly 75% of the external portfolio carries fixed interest rates, limiting exposure to global rate volatility. However, 23% remains floating a risk factor if global financial conditions tighten again.
Sri Lanka’s domestic debt stands significantly higher at $ 62.7 billion, bringing the Government’s total debt stock close to $ 102 billion. In rupee terms, gross public debt reached Rs. 32.2 trillion at end-2025, including Rs. 3.1 trillion in Treasury Bills and Rs. 15.6 trillion in Treasury Bonds.
The central issue is whether incremental external borrowing, even within a restructured framework, aligns with IMF debt sustainability thresholds. Under the Extended Fund Facility program agreed in 2023, Sri Lanka committed to strict primary surplus targets and debt-to-GDP reduction benchmarks through the medium term.
Progress on restructuring has been substantial. Following the April 2022 debt service suspension, agreements were finalised in 2024 with the Official Creditor Committee and key bilateral lenders, including China Exim Bank and China Development Bank. A landmark bond exchange concluded in December 2024 saw approximately 98% participation by ISB holders, converting nearly all defaulted bonds into new instruments.
By late 2025, bilateral agreements with Paris Club members and other lenders brought the signing process to roughly 95% completion. Debt servicing to restructured creditors has resumed under revised schedules.
However stabilisation does not equal resolution. External debt has been reshaped, maturities extended, and cash-flow pressures eased but the nominal stock remains high. For the NPP administration, the challenge is twofold: sustaining fiscal discipline while avoiding policy reversals that could unsettle markets or delay IMF reviews.
With global financing conditions uncertain and growth still fragile, the margin for deviation is slim. A $ 425 million quarterly rise may be manageable but sustained slippage could complicate future program assessments and investor confidence.
The restructuring phase may be nearing completion. The compliance phase is only beginning
