A STRATEGIC IMPERATIVE: WHY SRI LANKA’S DEBT MANAGEMENT MUST TRANSITION BEYOND THE CENTRAL BANK

The recent enactment of the Central Bank of Sri Lanka Act No. 16 of 2023 (CBSL Act) and Public Debt Management Act No. 33 of 2024, in September 2023 and June 2024, respectively, mark a turning point in Sri Lanka’s economic governance.

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These legislative reforms fundamentally reshape the institutional architecture of public finance management by transferring debt management functions from the Central Bank of Sri Lanka to the newly established Public Debt Management Office (PDMO) under the Ministry of Finance, Planning and Economic Development.

For decades, the Central Bank was tasked with the contradictory roles of controlling inflation and financing government borrowing. What seemed administratively convenient masked a structural conflict, one that increasingly diverged from global best practice. Meanwhile, access to low-cost monetary financing from the Central Bank reduced the incentives for stricter fiscal discipline. The enactment of the CBSL Act and the establishment of the PDMO under the Ministry of Finance, Planning and Economic Development address a fundamental conflict of interest that has long complicated effective fiscal and monetary policy implementation. By untangling these mandates, Sri Lanka is aligning itself with a global shift towards a clearer, more disciplined and ultimately more focused governance of public debt.

The Quiet Cost of Fragmentation

Sri Lanka’s debt management framework was, in effect, a patchwork of disconnected responsibilities. Domestic borrowing and debt servicing, both domestic and external, were handled by the Central Bank, external financing was negotiated by the Department of External Resources of the Ministry of Finance, Planning and Economic Development and state-owned enterprises (SOEs) accumulated liabilities through their own channels. Each institution operated diligently within its mandate; however, the system as a whole lacked coherence, leaving the country without a unified view of its true debt position.