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Sri Lanka’s interest payments reach highest levels worsening debt burden

By: Staff Writer

Colombo (LNW): Sri Lanka’s interest payments reach highest levels worsening debt burden, a leading economic research agency Verité Research highlighted.

Sri Lanka is continuing to spend a substantial amount of its earnings for its interest payment on public debt this year, Finance Ministry data shows.

The interest expenditure on public debt will be the largest item in all previous budgets presented in parliament during the past several decades up to now,finance ministry dotces said.

Sri Lanka’s debt-to-GDP ratio is increasing alarmingly owing to high interest payments, limited access to global financial markets, and dwindling revenues.

Based on the Central Bank data, Verité Research recently pointed out that Sri Lanka’s interest payments had reached their highest levels in 2022..

This increase in interest payments suggests a significant debt burden on the government. The ratio of interest payments to total government revenue has surged from 35 percent in 2015 to a striking 78 percent in 2022.

Notably, there was a substantial rise in interest payments between 2019 and 2020, with payments escalating from 47 percent to 71 percent, mainly due to a substantial fall in government revenue, as a result of the tax cuts in late 2019 and early 2020.

This increase in interest payments suggests a significant debt burden on the government

Total government revenue in the first four months of 2023 was Rs. 821.35 billion whereas the total expenditure on interest payments for domestic and foreign debt stood at Rs. 818. 97 billion in the same period. The revenue and interest payments all most equal with slight difference of Rs. 2.38 billion

In comparison with the year 2022 figures, the total revenue in the first four months posted as Rs 631.13 billion while the payment of interest rate for total debt recorded at Rs.426.79 billion

Accordingly there was a substantial revenue surplus of Rs.204.34 billion after the payment of debt interest at that time, finance ministry data shows.

Interest payments on foreign debt fell by 64.9 percent to Rs. 29.8 billion in the first four months of 2023, compared to Rs. 84.9 billion in the same period of 2022 whereas interest payment for domestic debt increased by 130.8 percent to Rs. 789.1 billion in the first four months of 2023 from Rs. 341.9 billion in the same period of 2022.

Total government revenue in the first four months of 2023 increased by 30.0 percent to Rs. 820.1 billion From Rs. 630.9 billion in the same period of 2022,

The total expenditure on interest payments including both domestic and foreign debt increased by 16.5 percent to Rs. 426.8 billion in the first four months of 2022; compared to Rs. 366.2 billion in the same period of 2021, latest finance ministry fiscal report revealed

Interest payments on foreign debt fell by 8.1 percent to Rs. 84.9 billion in the first four months of 2022, compared to Rs. 92.4 billion in the same period of 2021 whereas interest payment for domestic debt increased by 24.8 percent to Rs. 341.9 billion in the first four months of 2022 from Rs. 273.8 billion in the same period of 2021.

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