As Sri Lanka attempts to navigate its way out of economic turmoil, a leading academic has issued a stark warning: the country’s debt has reached a staggering $106 billion, with domestic borrowing spiraling alongside external liabilities.
Professor Wasantha Athukorala, Director of the Postgraduate Institute of Humanities and Social Sciences at the University of Peradeniya, shared his concerns during a media briefing this week. While acknowledging a mild recovery in the country’s revenue-generating sectors, he warned that mounting debt obligations threaten to derail long-term stability.
“We are seeing some positive movement in the economy. Tourism revenue has improved, and remittances from overseas workers are on the rise,” Athukorala said. “However, these gains are overshadowed by the reality that Sri Lanka is still sinking deeper into unsustainable debt.”
According to Athukorala, government borrowing—both foreign and domestic—has now reached approximately $106 billion. “The increase in domestic debt is especially troubling,” he added. “It suggests we have yet to establish a sustainable fiscal trajectory.”
A Growing Burden of Interest Payments
The professor drew attention to the explosive growth in interest payments over the past five years. In 2020, the government allocated Rs. 866 billion for debt servicing. By 2023, that figure had nearly tripled to Rs. 2,456 billion. It climbed to Rs. 2,690 billion in 2024, and is projected to reach Rs. 2,950 billion in 2025.
“In just five years, interest payments alone have ballooned to almost Rs. 3 trillion annually,” Athukorala stated. “This raises serious questions about the direction of our fiscal policy.”
By comparison, only Rs. 1,300 billion has been allocated for investments—spending critical for long-term economic development. The disproportionate allocation underscores a structural imbalance in Sri Lanka’s budget priorities.
Crisis of Confidence and the Path Forward
While the International Monetary Fund (IMF) continues to monitor Sri Lanka’s fiscal reforms as part of its bailout program, concerns persist over whether the government can meet its obligations without further undermining growth.
Professor Athukorala’s remarks suggest that despite signs of surface-level recovery, Sri Lanka’s economy may be operating on borrowed time. “When investment shrinks and nearly 70% of your capital expenditure is spent on interest, it’s hard to argue that the economy is heading in the right direction,” he concluded.
The warning comes as the country prepares for more rigorous external debt negotiations and critical discussions around fiscal reform. With economic uncertainty still looming large, the question remains: can Sri Lanka reverse course before its mounting debt becomes unmanageable?
