– By Rahul Samantha Hettiarachchi
Sri Lanka’s economy continues to face severe challenges, and restoring stability remains a key priority for the society. One of the crucial factors influencing this recovery is the country’s domestic and foreign borrowing policies. Interestingly, while current government leaders criticized previous administrations for their borrowing practices when they were in opposition, they now face similar scrutiny over their own policies.
According to data obtained through the Right to Information (RTI) Act No. 12 of 2016 from the Public Debt Management Office, the Sri Lankan government has borrowed approximately LKR 438 billion between September 23, 2024, and December 12, 2024.
Domestic Borrowing
A significant portion of this borrowing consists of domestic debt, primarily through treasury bills and treasury bonds issued by the Central Bank of Sri Lanka (CBSL). These short-term and long-term debt instruments are issued by central bank of Sri Lanka on behalf on Government. These loans are obtained through public auctions by the Central Bank and are purchased by banks, financial institutions and even individuals.
Between September 27, 2024, and November 8, 2024, the government raised LKR 112.17 billion through treasury bills and LKR 139 billion through treasury bonds. This brings the total of LKR 251.179 billion in domestic borrowing during this period.
Foreign Borrowing
Foreign debt sources include loans from international financial institutions and bilateral agreements with foreign governments. As part of Sri Lanka’s economic stabilization and restructuring policies, the International Monetary Fund (IMF) extended a Special Drawing Rights (SDR) facility of 150.6 million on October 28, 2024. Consequently, the International Monetary Fund provides SDRs, and according to the website www.xe.com, the price of one SDR is USD 1.31 as of 28.01.2025, making the total IMF disbursement approximately LKR 58 billion.
Additionally, Sri Lanka received LKR 128.1 billion in foreign loans from September 23, 2024 to November 12, 2024, under multilateral agreements signed by previous governments. This includes LKR 1.258 billion from Japan, LKR 153 million from the Netherlands, LKR 55.038 billion from the Asian Development Bank (ADB), LKR 70.178 billion from the World Bank, and LKR 1.563 billion from the OPEC Fund for International Development (OFID). These funds primarily support development projects and balance of payment support, while providing conditions for economic reforms.
Can Sri Lanka Overcome Its Debt Crisis?
There is no straightforward answer to whether Sri Lanka can break free from its debt dependency. However the country’s recent economic crisis, triggered by unsustainable debt levels, highlights the urgent need for financial discipline and strategic planning.
While a debt-free state may be unlikely soon, sustainable debt management is achievable through proper fiscal discipline and policy measures. Professor Amila Buddhika Sirisena from the University of Ruhuna emphasized the importance of responsible borrowing, stating , “We should be careful when borrowing. For example, we should do a proper feasibility study before a project. In that project, we should be able to repay that loan within the specified time frame. Otherwise, its usefulness will be reduced. Borrowing is not wrong, the problem is how it is managed. Also, if you take loans for consumption, it becomes a problem. Because there is no way to pay them off through that loan. The loan should be taken at a bearable interest rate and there should be investment benefits from it. We should be careful when taking a loan and doing a project. We should be concerned about whether we can repay the loan with the earnings from them in the future and how much those projects will positively affect us in becoming a more prosperous country in the future. Borrowing is not a bad thing, the problem is the conditions agreed upon when taking out the loan and the way the loan is used.”
Sustainable debt management requires a collective effort from the government, businesses, and citizens. It also depends on global economic conditions and continued support from international partners. While achieving a debt-free future may be a long and challenging journey, Sri Lanka can work towards economic stability through prudent policies and responsible financial management.
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