As Sri Lanka works towards achieving economic stability, a significant imbalance in the national budget has raised concerns among economists. In 2025, nearly Rs. 3 trillion has been earmarked for debt interest payments—more than double the Rs. 1,300 billion allocated for public investment.
Experts warn that this disparity could jeopardize the country’s long-term growth prospects and increase its economic vulnerability, even as it undertakes reforms supported by the International Monetary Fund (IMF).
Sri Lanka’s total public debt has now climbed to US$103.7 billion, with a substantial portion comprising local debt.
Dr. Priyanga Dunusinghe of the University of Colombo highlighted the urgent need to diversify exports, add value to products, and boost sectors such as foreign remittances and tourism. However, he cautioned against over-reliance on these areas, advocating instead for broader structural reforms to ensure sustainable economic resilience.
Government data show a sharp rise in interest payments over recent years: from Rs. 866 billion in 2020 to Rs. 2,456 billion in 2023, Rs. 2,690 billion in 2024, and an estimated Rs. 2,950 billion in 2025. This steep increase, driven by growing debt, has tightened the availability of funds for development and cast doubt on whether Sri Lanka is on a sustainable economic trajectory.
Meanwhile, Sri Lanka and the IMF are engaged in negotiations for the fourth review of the $2.9 billion Extended Fund Facility, with discussions continuing this week in Washington as a Sri Lankan delegation participates.
While the IMF has acknowledged Sri Lanka’s strong post-crisis recovery following the March 2023 bailout, new external challenges have surfaced. Chief among them is the 44 per cent tariff imposed by the United States on $3 billion worth of Sri Lankan exports, predominantly garments. Although the tariff implementation has been deferred for three months, nearly all affected products will still face a 10 per cent duty.
In response, the IMF has called for a review and potential revisions to Sri Lanka’s economic programme, including demands for higher electricity prices, the elimination of tax exemptions, and the strengthening of foreign reserves.
At the IMF and World Bank Spring Meetings, Sri Lanka is advocating for accelerated debt restructuring. The government has proposed a moratorium on the repayment of $12 billion in bilateral debt until 2028 and a 30 per cent haircut on dollar-denominated bonds—critical steps toward restoring debt sustainability.
Despite the remarkable progress made in economic recovery and reforms, the outcomes of the ongoing IMF negotiations and the Spring Meetings will be crucial in shaping Sri Lanka’s financial stability and future growth trajectory in the coming months.
