📈 Sri Lanka’s Debt Crisis: Moving Beyond the Debt-to-GDP Ratio

The April 2022 default highlights that headline debt ratios can be misleading without context on currency denomination, maturity, and hidden liabilities. • Hidden Liabilities: Official figures previously excluded State-Owned Enterprise (SOE) liabilities, estimated at 15.8% of GDP in 2020. Discrepancies in reporting led to a gap where actual foreign exchange liabilities reached US$ 69 Bn against an officially reported US$ 51 Bn. • Debt Composition: Shifting from concessional loans to International Sovereign Bonds (ISBs) since 2007 introduced commercial interest rates (5.875%–7.875%) and tight maturity windows. By March 2022, debt service reached US$ 6 Bn against just US$ 1.9 Bn in usable reserves. • Revenue Strain: Approximately 70% of government revenue was consumed by interest payments alone prior to the crisis, severely limiting fiscal space for infrastructure and social services. • Institutional Reforms: To restore credibility, Sri Lanka has established a centralized Public Debt Management Office. As of early 2026, the Central Bank has closed its Public Debt Department to eliminate conflicts of interest and ensure more transparent reporting. • Key Lesson: Repayment capacity and honest accounting are more critical than the headline ratio. Credibility depends on reliable, timely data and the consolidation of previously scattered liabilities under a single framework.