by Our Correspondent in Colombo
Sri Lanka’s government debt climbed sharply in the first half of 2025, raising concerns over fiscal stability and economic sustainability. According to the Weekly Economic Indicators Report released by the Central Bank of Sri Lanka on 24 June 2025, total government debt reached Rs. 29,634.78 billion by the end of June, up Rs. 896.08 billion from Rs. 28,738.70 billion at the end of 2024. The increase was driven by Rs. 496.42 billion in domestic borrowing and Rs. 399.66 billion in foreign debt, reflecting the government’s continued reliance on both internal and external financing.
At a Regional Economic Outlook press conference in Hong Kong recenetly, Thomas Helbling, Deputy Director of the Asia and Pacific Department of the International Monetary Fund (IMF), commented on Sri Lanka’s economic prospects. Addressing questions from journalists, Helbling confirmed that growth projections for 2026 had been revised downward from 3.5% to 3.1%. He noted that Sri Lanka experienced a strong recovery following the 2022–2023 crisis, with estimated growth of 5% last year and 4.8% in the first half of 2025. “This recovery is a normalization and temporary effect. Therefore, we now expect the economy to return to its trend growth rate of 3.1%,” he said. Despite this, Helbling stressed that Sri Lanka’s potential growth rate would reach 3% in 2026, even as growth expectations for 2025 have been revised upward from 3.1% to 4.2%.
Helbling also addressed questions on electricity tariffs, describing them as a “continuous and programmatic factor” influenced by climate and international energy prices. He highlighted the importance of applying the cost recovery principle to reduce financial risks from state-owned enterprises and praised the government for supporting the ongoing reforms.
Concerns over debt repayment after 2028 were also raised. Helbling emphasized that the IMF’s focus remains on the immediate period of 2025 and 2026 and stressed that full implementation of domestic reforms is crucial to stabilizing the economy.
On tax policy, Helbling highlighted the need for the 2026 budget to include strong revenue measures to maintain a primary balance of 2.3% of GDP, a key requirement for restoring debt sustainability. He called for strengthening tax exemption frameworks, broadening the tax base, increasing compliance, and enhancing public financial management.
The combined data from the Central Bank and IMF commentary underscores the twin challenges facing Sri Lanka: managing a rising debt burden while implementing reforms to stabilize the economy and ensure long-term fiscal sustainability. Economists warn that failure to fully implement these reforms could complicate debt repayments and limit the country’s ability to achieve sustainable growth.
