Sri Lanka’s external finances are under growing pressure, with rising interest payments and a sharply widening trade deficit straining the economy. Treasury officials revealed that Rs. 1.5 trillion had been spent on principal and interest payments during the first four months of 2025—consuming over 20% of the country’s annual borrowing limit.
With Rs. 796 billion paid as interest and Rs. 352 billion on principal repayments, the country’s debt servicing remains a formidable burden. Alarmingly, Rs. 705 billion of the interest was paid on domestic borrowings alone.
This mounting debt is compounded by a weakening trade balance. In April 2025, Sri Lanka’s trade deficit surged to US $717 million, marking a steep rise from $396 million recorded in March—a more than 80% month-on-month increase. Year-on-year, the deficit was also significantly wider than the $558 million reported in April 2024.
The growth in imports outpaced exports, driving the widening gap. While April exports rose by 10.4% YoY to $968 million, they fell sharply from March’s $1.24 billion. Meanwhile, imports grew 17.5% YoY to $1.68 billion in April, maintaining a similar level to March’s $1.63 billion, which had also risen 8.6% YoY.
According to the Central Bank, for the first four months of 2025, the cumulative trade deficit widened to $2.25 billion. Export earnings during this period increased 6.4% YoY to $4.3 billion, driven mainly by gains in textiles and garments (11.6%), spices (66.3%), food, beverages and tobacco (25.0%), and chemical products (42.6%).
However, import expenditure ballooned by 12.7% YoY to $6.57 billion. This surge was led by a dramatic rise in personal vehicle imports (707.9%), followed by transport equipment (142.2%), oils and fats (136.4%), machinery and equipment (26.5%), and sugar and confectionery (51.5%).
In terms of borrowings, Rs. 654 billion was sourced domestically while Rs. 128 billion came from foreign sources, totalling 20.5% of the Rs. 3,800 billion approved borrowing limit for 2025. Treasury bond issuance on a net basis reached Rs. 760 billion, while Rs. 107 billion worth of Treasury bills were retired.
As of end-April, Sri Lanka’s domestic debt stock stood at Rs. 19.3 trillion, with foreign debt at Rs. 11.2 trillion as of end-March. Additionally, Treasury guarantees amounting to Rs. 1,515 billion were issued by April’s end, including Rs. 910 billion for foreign obligations.
Officials also indicated a downward revision of the 2025 GDP projection—from Rs. 33 trillion to Rs. 32 trillion—which could reduce revenue and expenditure targets by Rs. 150 billion. This outlook raises further concerns over fiscal stability in the months ahead.
