Sri Lanka debt buyback talks begin with Lazard as the PDMO explores liability management and reports stronger debt affordability in 2025.
The Sri Lanka debt buyback strategy is moving forward as the Public Debt Management Office begins discussions with international financial adviser Lazard Frères.
PDMO Director General Udeni Udugahapattuwa confirmed the talks while appearing before Parliament’s Committee on Public Finance.
The discussions focus on improving foreign debt management and examining possible bond buybacks under a broader liability-management programme.
Udugahapattuwa said Lazard previously advised Zambia during its debt-restructuring process. She added that Sri Lanka requires outside expertise for complex transactions of this nature.
Although the PDMO will consider debt buybacks, its officials still lack the specialised training and technical experience needed to structure and execute them independently.
Sri Lanka Debt Buyback Requires Foreign Expertise
The government began developing the PDMO’s internal capacity only in January 2025.
One month later, the office produced Sri Lanka’s first medium-term debt-management strategy. An IMF technical-assistance team also visited in June to help officials prepare standard operating procedures.
The IMF’s programme documents show that debt vulnerabilities remain high despite significant improvements. Public debt fell from 125.8% of GDP in 2022 to 101.1% in 2025, while interest payments declined from 79% to 46% of government revenue.
Finance Ministry data lists a US$1.126 billion step-up bond maturing in 2038. It also identifies four macro-linked bonds worth more than US$2.132 billion, with maturities between 2030 and 2038.
Sri Lanka’s restructured International Sovereign Bond portfolio reportedly totals US$10.255 billion.
Zambia Offers a Possible Liability-Management Model
The committee also considered Zambia’s international experience.
Zambia reportedly completed a US$1.36 billion Eurobond buyback with US$600 million in support from the African Development Bank Group.
The transaction involved a long-dated sovereign instrument carrying interest payments that increase over time. Officials presented it as an example of the sophisticated liability-management operations Sri Lanka may eventually consider.
However, the newly established PDMO does not yet possess the expertise required to conduct comparable transactions without international assistance.
Sri Lanka’s broader debt-restructuring programme seeks to reduce public debt below 95% of GDP by 2032. It also aims to limit foreign-currency debt servicing and annual government financing needs.
Debt Affordability Reaches Six-Year High
Meanwhile, figures submitted to COPF indicate that debt affordability improved substantially during 2025.
| Indicator | 2023 | 2024 | 2025 |
|---|---|---|---|
| Interest payments as a share of revenue | 80% | 66% | 44% |
| Interest payments as a share of GDP | Not stated | 9% | 8% |
| Government revenue | Not stated | Rs.4.091 trillion | Rs.5.486 trillion |
Sri Lanka’s total outstanding public debt reportedly stood at Rs.32.195 trillion, or US$103.9 billion, at the end of 2025.
External debt accounted for 37.5%, or Rs.11.675 trillion. Market-based external borrowings totalled approximately US$13 billion, while foreign debt servicing reached Rs.767 billion during 2025.
The improving indicators give the government more room to consider active liability management. However, any Sri Lanka debt buyback would still require careful pricing, transparent procedures and specialist advice to ensure that it reduces future costs rather than creating new risks.
