Parliamentary committee exposes shortfall in foreign inflows needed for external debt payments, testing the island nation’s fragile recovery just months after devastating Cyclone Ditawah.
$400 Million Debt Servicing Gap Looms for 2026:
Sri Lanka must scramble to close a resource management gap exceeding $400 million to service its external debt in 2026, the parliamentary Committee on Public Finance (COPF) has revealed, underscoring persistent fiscal pressures despite three years of IMF-backed stabilisation efforts.
The warning, issued after a COPF meeting last week, highlights a clear mismatch: projected external debt servicing requirements of $2,504 million against expected foreign inflows of just $2,100 million. With reconstruction costs from November’s Cyclone Ditawah still mounting and investor confidence fragile, the gap risks forcing tougher choices on borrowing, spending or revenue measures at a critical juncture.
2026 Debt Servicing Gap and Domestic Debt Overview:
According to official statements from the Parliament media office, Sri Lanka’s total external debt servicing requirement for 2026 stands at $2,504 million. Anticipated foreign inflows total $2,100 million, leaving a shortfall that COPF members described as needing urgent attention to avoid pressure on reserves or additional domestic borrowing.
The committee also examined the Treasury’s cash buffer, which stood at approximately Rs. 750 billion by the end of 2025 but declined after December payments, prompting increased Treasury bill issuance and higher short-term interest costs in early January. Officials confirmed the situation has since stabilised, though the opportunity cost of holding the buffer-earning 2-3 percentage points below the government’s average borrowing rate-was flagged.
On the domestic front, Sri Lanka’s total debt stock sits at Rs. 31 trillion, split almost evenly between Treasury bills (Rs. 15.6 trillion) and bonds (Rs. 15.4 trillion), carrying an average interest cost of 8.73 percent. The Public Debt Management Office, operational since late 2024, has recruited 90 percent of its staff and is transitioning toward an independent auction system.
Sri Lanka’s Debt Crisis, Recovery, and Cyclone Shock:
Sri Lanka’s debt odyssey began in earnest with the 2022 sovereign default-the first in the nation’s history-triggered by a toxic mix of tax cuts, pandemic-hit tourism and remittances, aggressive organic farming policies that slashed yields, and excessive monetary financing. Foreign reserves collapsed, fuel and medicine shortages sparked nationwide protests, and President Gotabaya Rajapaksa fled the country in July 2022.
An interim administration under Ranil Wickremesinghe secured a $3 billion IMF Extended Fund Facility in March 2023, paired with painful austerity, revenue reforms and debt restructuring talks. Creditor agreements with bondholders China, India and the Paris Club were finalised in 2024-2025, delivering substantial relief-including grace periods pushing major repayments to 2028 onward.
The economy showed clear signs of healing: growth resumed at around 4-5 percent in 2024-2025, inflation plummeted from 70 percent peaks to near single digits, and reserves rebuilt above $6 billion. President Anura Kumara Dissanayake’s NPP government, elected in 2024 on an anti-corruption and “system change” platform, presented a 2026 budget in November 2025 targeting a 2.5 percent primary surplus and continued fiscal consolidation.
Then came Cyclone Ditawah on 28 November 2025-the deadliest natural disaster in decades. It claimed over 600 lives, displaced more than 100,000 people, and inflicted widespread infrastructure damage. The government secured a $206 million IMF Rapid Financing Instrument in December 2025 and pushed through a Rs. 500 billion supplementary budget, breaching the 13 percent of GDP primary spending ceiling under emergency provisions.