Sri Lanka’s external debt position continues to tighten, raising questions about the country’s ability to navigate its recovery phase while meeting rising repayment obligations.
The Public Debt Management Office’s latest Quarterly Debt Bulletin shows that as of end-September 2025, Sri Lanka’s external debt stock reached USD 37.24 billion, marking a USD 100 million increase from the previous quarter.
Despite being locked out of global capital markets since the 2022 default, the government continues relying on multilateral financing from institutions such as the World Bank and Asian Development Bank both of which now account for more than 83% of multilateral exposures.
According to the bulletin, multilateral lenders represent 37% of the external portfolio, commercial creditors 34%, and bilateral partners 29%.
Sri Lanka managed to settle USD 1.36 billion in external obligations during the first half of 2025, completing 55% of the year’s total requirement. This leaves USD 1.09 billion in payments due before year-end.
Central Bank Governor Dr. Nandalal Weerasinghe has repeatedly cautioned that annual commitments will average USD 2.75 billion through 2027, before rising significantly from 2028 when pre-crisis obligations and new financing lines converge.
According to him, repayments after 2028 are projected to range between USD 3.2–3.5 billion, with some years expected to touch USD 4 billion.
This looming repayment spike underscores the urgency of Sri Lanka’s restructuring efforts. Substantial progress has been recorded since the 2022 default.
In June 2024, the government secured treatment agreements with the Official Creditor Committee and separately with the Export-Import Bank of China, followed by amendment arrangements to operationalise both deals. The restructuring of loans from China Development Bank was also completed in December 2024.
On the commercial front, an agreement in principle with International Sovereign Bondholders (ISBs) was reached in September 2024, with the bond exchange executed in December. Participation reached an impressive 98%, enabling nearly the entire defaulted commercial portfolio to be converted into new instruments.
Bilateral negotiations have also advanced steadily through 2025, with agreements finalised with Japan, India, France, Hungary, and the United Kingdom, bringing total restructuring completion to about 94%. More recently, SriLankan Airlines reached an agreement in principle with bondholders holding USD 175 million.
With these arrangements in place, the government has resumed regular servicing to creditors. But the underlying issue remains unchanged: while restructuring has bought Sri Lanka breathing space through 2027, the impending jump in repayment obligations from 2028 onward raises concerns about the country’s long-term debt sustainability.
Without stronger export growth, fiscal reforms, and renewed market access, experts warn that Sri Lanka risks drifting back toward repayment stress within the next decade.
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