Debt Path Risks & Rising Reserve Targets Amid Geopolitical Tensions 📈

Economist Talal Rafi warns that Middle East instability could complicate Sri Lanka’s debt sustainability as the country faces higher external buffer requirements under IMF targets. • Debt & Reserves: Gross Official Reserves are projected to jump from US$ 8.9 Bn in 2026 to US$ 13.4 Bn by end-2027. Annual external debt servicing is expected to rise from US$ 2 Bn to US$ 3 Bn as bilateral repayments resume from 2028. • Market Return: Sri Lanka aims to return to international capital markets with a US$ 1.5 Bn International Sovereign Bond (ISB) issuance in 2027, followed by another in 2028. • Energy & Fiscal Pressure: The country spends approximately US$ 4.5 Bn annually on oil imports, effectively offsetting a significant portion of foreign exchange earnings. Transitioning toward renewable energy is highlighted as critical for long-term energy independence and fiscal stability. • Emerging Opportunities: Geopolitical risks in the Middle East have created demand for alternative ICT/BPM and data centre hubs. While 20% of global investment is shifting to data infrastructure, Sri Lanka requires structural reforms and a reliable electricity supply to capture this market. _Note: Projections based on current IMF program targets and economist analysis._