Sri Lanka’s latest Medium-Term Debt Management Strategy (MTDS) 2026–2030 reveals a stark shift in the country’s debt risk profile. While external debt restructuring has eased immediate repayment pressure, the country is now grappling with a far more urgent threat: a heavy concentration of short-term domestic borrowing that must be refinanced within the next few years.
According to the Public Debt Management Office (PDMO), total Government debt reached Rs. 30.8 trillion by June 2025, with 64% sourced domestically and 36% externally. The debt-to-GDP ratio has stabilised at 99.1% in 2024, down from 114.2% in 2022, thanks largely to IMF-driven fiscal consolidation. But behind this improvement lies a compressed maturity structure that could threaten financial stability.
The biggest red flag is the growing stock of Treasury Bills (T-Bills), projected to reach Rs. 3.6 trillion by end-2025 all maturing in 2026. The PDMO warns that this concentration creates a “refinancing cliff” that will severely test Government cashflows. T-Bills stood at Rs. 4.09 trillion at the start of 2024 and Rs. 4.07 trillion at the beginning of 2025, requiring repeated rollovers.
Treasury Bonds (T-Bonds) dominate the long-term profile, but they too pose risks. A major maturity spike of Rs. 2.15 trillion arrives in 2028, the result of shorter-tenor borrowings issued after the 2022 economic crisis. The period between 2027 and 2033 is now heavily clustered with domestic redemptions.
Sri Lanka’s restructuring agreements with the Official Creditor Committee and China Exim Bank have significantly eased short-term pressures. Grace periods extend to 2028, interest rates have been reduced, and repayment horizons stretch to 2043. International sovereign bonds were pushed forward by roughly six years.
Yet, even with restructuring, Sri Lanka must service USD 2.45 billion in 2025, followed by USD 2.13 billion in 2026, USD 2.09 billion in 2027, and USD 3.10 billion in 2028. External risks remain heavily tied to exchange rate movements, with 37.8% of total Government debt denominated in foreign currency.
The MTDS proposes sourcing 90% of Government borrowing domestically by 2030, reducing dependency on external markets while preparing for higher post-2030 repayments. The Government plans to reopen benchmark bonds of 5, 8, 10, 12 and 15 years, introduce inflation-linked instruments, and strengthen the domestic investor base.
The PDMO is also exploring Samurai, Panda, Sukuk, and syndicated loans as alternative channels.
The report cautions that debt stability depends heavily on policy coordination. Data limitations, volatility in the exchange rate, slow market development and shallow liquidity continue to pose risks. Success will require disciplined cashflow management, longer maturities, and rebuilding investor confidence.
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