Sri Lanka's Escalating Debt Trap: 20 Years of Structural Borrowing 📉

• Overall Fiscal Crisis Interest costs absorbed 89–127% of total revenue and 89–108% of total expenditure in 2025. In 2025, foreign debt service reached US$ 2.454 Bn (US$ 1.369 Bn principal + US$ 1.085 Bn interest). Debt servicing costs consume nearly Rs. 3 Tn annually, exceeding combined education and health spending. • Regime Breakdown & Evolution Mahinda Rajapaksa (2005–2015): Borrowed US$ 10–12 Bn mostly on concessional terms for infrastructure; interest consumed 25–30% of expenditure. Sirisena–Wickremesinghe (2015–2019): Borrowed US$ 17–18 Bn via commercial ISBs/Eurobonds; interest rose to 35–40% of expenditure. Gotabaya Rajapaksa (2019–2022): Added US$ 7–8 Bn in emergency loans during external shocks; interest surpassed 50% of expenditure. Ranil Wickremesinghe (2022–2024): Borrowed US$ 0.5–1 Bn post-default under IMF restructuring; interest reached 65–90% of expenditure. AKD Government (2024–2026): Raised ~US$ 5–6 Bn externally plus Rs. 2.5–3 Tn annually in domestic debt; interest absorbs 89–108% of expenditure. • Core Drivers & Structural Vulnerabilities Tax Revenue Collapse: Tax-to-GDP dropped from 18% (1990s) to 8% in 2022. Trade Deficits: persistent 50-year trade deficit since opening the economy in 1977. SME & Consumer Impact: High domestic borrowing absorbs credit, forcing reliance on higher VAT, fuel levies, and living costs; poverty rate sits near 24% in 2025. • Outlook (2025–2027) Foreign debt interest projected to fall from US$ 1.085 Bn (2025) to US$ 931 Mn (2026) and US$ 893 Mn (2027). Local currency interest projected to drop from Rs. 2,945 Bn (2025) to Rs. 2,615 Bn (2026). Key risks include exchange rate volatility (~15% depreciation in 2025) and inflation risks.