External debt rise not solely due to rupee drop

Sri Lanka’s rise in government external debt since the end of 2024, and the last recorded in March of 2026, cannot be wholly attributed to the depreciation of the Sri Lankan Rupee, as Sri Lanka has maintained positive fiscal balances and growth since then, Frontier Research Senior Research Lead Arshad Ismail said, speaking to The Daily Morning Business yesterday (2).

Acknowledging the statistical rise in external debt, Ismail said: “If you look at external debt, when there is a depreciation of the rupee, in rupee terms, the debt increases. But that doesn’t really matter. Statistically you might see higher amounts of rupee debt, technically in terms of the dollar in which payments are to happen, there is no difference at all.”

According to the Statistical Debt Bulletins released by Sri Lanka’s Public Debt Management Office, Sri Lanka’s total government debt in 2024 was $ 101,251 million, and in March of 2026, according to the latest bulletin total debt stood at $ 98,965 million. Domestic debt had nominally fallen from $ 64,571 million to $ 61,497 million in 2026, alongside SOE guaranteed debt falling from $ 4,896 million to $ 3,279 million.

However, external debt had by March increased from $ 36,680 million recorded at the end-2024 to $ 37,468 million.

“If you look at total debt in recent years, post-crisis, given that the Government has run strong fiscal balances, debt has remained in rupee terms pretty stagnant, it hasn’t really increased,” Ismail said.

“Along with that, with the GDP growing, debt-to-GDP did come down. It was around 104% in 2022, it has gradually come down and now it’s in the lower 90s. They have not let their total debt stock increase. It can be explained that the value has increased along with GDP growth. As a percentage, now the country can handle more.”

Sri Lanka’s Central Government debt-to-GDP ratio was 104.2% in 2023, 95.5-100.8% in 2024, and reached approximately 91.6% by December 2025.

“On the local end, the Government is paying off its short-term debt. The Treasury bill stock that the Government had was close to around Rs 4 trillion and now it has come down to Rs 2.6 trillion. That was a massive pay down in treasury stock.”

Though Sri Lanka’s Central Government debt-to-GDP ratio for 2026 is projected to fall to between 88% and 90%, the IMF warned that external shocks have tilted economic risks to the downside.

Before the Sri Lankan Rupee reached its weakest on 21 May this year, it weakened by 4% against the dollar, when the rate ranged from Rs 342.63  buying to Rs 354.03 selling.

However, from 22 May onwards, the rupee recovered by around 7% over three consecutive sessions. By 26 May, the rate had eased to Rs 318.32 buying and Rs 328.69 selling, with interbank spot contracts closing at Rs 322.00/325.00.

Source: The morning