Public debt interest soars, hurt SL’s public investment future
While Sri Lanka’s economic stability is in the making, a glaring imbalance in the nation’s national budget is ringing alarm bells among economists: nearly Rs. 3 trillion has been allocated for debt interest payments in 2025—more than twice the Rs.1,300 billion for public investment.
According to experts, this imbalance would threaten long-term growth and render the economy more vulnerable, despite reforms backed by the International Monetary Fund (IMF).
The overall public debt has now risen to US$103.7 billion, of which a significant portion is local debt.
Dr. Priyanga Dunusinghe, of Colombo University emphasised the necessity of raising exports through diversification and addition of value, as well as promoting foreign remittances and tourism too. He warned against over-reliance on these sectors, promoting broader structural changes.
Government data reflect a rise in interest payments: Rs.866 billion in 2020 to Rs.2,456 billion in 2023, Rs.2,690 billion in 2024, and estimated Rs.2,950 billion in 2025.
This steep increase on the back of growing debt has created a squeeze on development funds and raised the question of whether the nation is on a sustainable economic path.
Meanwhile, Sri Lanka and the IMF are negotiating the fourth review of the $2.9 billion Extended Fund Facility, and talks continued this week in Washington with a Sri Lankan delegation.
While the IMF noted Sri Lanka’s strong post-crisis recovery since the March 2023 bailout, new external risks have emerged.
Leading among them is the 44 per cent tariff imposed by the US on $3 billion worth of Sri Lankan imports, primarily garments. While the tariff has been put off for three months, nearly all products are impacted at 10 per cent duty.
The IMF responded with a demand for reconsideration and possible revisions in the programme, demanding higher electricity prices, elimination of tax exemptions, and foreign reserve construction efforts.
At the IMF and World Bank Spring Meetings, Sri Lanka will push for faster action on debt restructuring. The government has floated the idea of giving a moratorium on the repayment of $12 billion bilateral debt by 2028 and a 30 per cent haircut on dollar-denominated bonds—steps crucial to restoring debt to sustainability.
While Sri Lanka has made remarkable progress in its economic recovery and reform initiative, the outcome of ongoing negotiations with the IMF and the results of the Spring Meetings will be instrumental in determining the financial stability and growth trajectory of the nation in the coming months.
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