By: Staff Writer
July 06, Colombo (LNW): Sri Lanka’s Government borrowed less than half of the Rs. 4 trillion authorised by Parliament in 2025, raising fresh questions about whether improved public finances, limited spending capacity, or restricted access to financing drove the unexpected outcome.
According to the Finance, Planning and Economic Development Ministry’s 2025 Annual Report, total Government borrowing reached Rs. 1.96 trillion during the year—well below the borrowing ceiling approved under the Appropriation Act, No. 3 of 2025. The Ministry attributes the lower borrowing to existing cash buffers and stronger fiscal conditions, saying the outcome supports the country’s debt reduction objectives.
The figures represent a significant departure from previous years when the Government relied heavily on borrowing to bridge large fiscal deficits. Officials say the borrowing strategy was shaped by the Public Debt Management Act, No. 33 of 2024, and the Medium-Term Debt Management Strategy covering 2025 to 2029.
The annual borrowing plan had projected Rs. 700 billion in external financing alongside Rs. 3.1 trillion in domestic borrowings, excluding Treasury bill rollovers. However, actual borrowing fell substantially below those projections.
The report indicates that the Government deliberately shifted towards domestic financing while attempting to minimise refinancing risks, interest rate exposure and foreign exchange vulnerabilities. Treasury Bond issuances accounted for Rs. 2.4 trillion raised locally, while Domestic Dollar Bonds generated an additional $50 million, equivalent to approximately Rs. 15 billion.
Externally, the Government secured Rs. 475 billion in financing, considerably lower than the domestic component. The reduced dependence on foreign borrowing reflects broader efforts to avoid excessive exposure to exchange-rate risks following Sri Lanka’s debt restructuring process.
Nevertheless the report also raises questions about the gap between approved borrowing authority and actual utilisation. While the Ministry cites healthier fiscal conditions, analysts may also examine whether expenditure delays, tighter budget controls or implementation bottlenecks contributed to the lower financing requirement.
Despite borrowing less than anticipated, the Government continued engaging international lenders. During 2025, Sri Lanka signed 14 foreign loan agreements worth $1.23 billion. The Asian Development Bank emerged as the largest lender with commitments of $790 million, followed by the International Monetary Fund with $206.1 million.
A notable feature of the new financing was its emphasis on budget support rather than capital investment. Budget support represented $706.1 million, or 58% of all new loan commitments.
Meanwhile, foreign loan disbursements reached $1.78 billion during the year. Nearly half came from the IMF, with the Asian Development Bank contributing 29% and the World Bank providing 11%.
The allocation of these funds further illustrates the Government’s priorities. Almost 71% of all foreign loan disbursements financed budget support, while humanitarian assistance received 4.6%. Tourism projects accounted for 4% of funding, and roads and bridges received only 3%.
The figures suggest that even as borrowing levels declined, external financing remained heavily focused on maintaining Government operations and supporting economic recovery rather than expanding large-scale development investments.