SL’s debt burden far from over: Analyst

Sri Lanka’s macroeconomic adjustment path remains heavily burdened by an unchanged debt stock and widening trade deficits, while the flexible exchange rate policies continue to trigger massive balance sheet shocks across the state enterprises, according to Global Business Cycle Economist Dr. Kenneth De Zilwa.

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Discussing the nation’s debt fundamentals, Dr. De Zilwa pointed out that while the external debt restructuring has offered near-term breathing room through grace periods and maturity extensions, it has completely failed to reduce the underlying stock of debt.

Citing the Finance Ministry data, he noted that Sri Lanka’s total public debt still stands at a staggering US $ 103 billion as of the first quarter of 2026.

“The key issue is that the debt has been reprofiled, not resolved. That shifts pressure into the future rather than removing it,” he explained.

Turning to the external sector, Dr. De Zilwa highlighted a concerning trajectory in the trade deficit. Based on the Central Bank data from May 2026, the cumulative trade deficit widened significantly to US $ 4.7 billion during the first five months of the year, up from US $ 2.7 billion in the corresponding period of 2025.

This expansion, driven by the import growth vastly outpacing the exports, is causing a continued deterioration in the Net International Investment Position (NIIP), as the external liabilities mount faster than the economy’s ability to generate external revenue-producing assets.

At policy level, Dr. De Zilwa acknowledged that the flexible exchange rate adjustments, supported by the International Monetary Fund (IMF), serve as a macroeconomic stabilisation tool. However, he warned of the deep, negative implications this has on the balance sheets of both the private sector and state-owned enterprises (SOEs).