Sri Lanka’s Debt Restructuring Nears Completion, But IMF Warns: ‘No Room for Fiscal Slippage’

COLOMBO (News 1st); Sri Lanka’s sovereign debt restructuring process is almost complete, marking a significant milestone in the country’s economic recovery.

According to an IMF Working Paper titled “Sri Lanka’s Sovereign Debt Restructuring: Lessons from Complex Processes” by Peter Breuer, Sandesh Dhungana, and Mike Li, the restructuring has helped normalize domestic financing conditions and stabilize the economy.

However, the IMF cautions that restructuring alone is not enough to ensure long-term debt sustainability.

The paper stresses the need for continued fiscal discipline, prudent macroeconomic policies, and stronger institutions under and beyond the current Extended Fund Facility (EFF) arrangement.

"There is no room for slippage on the fiscal front. Renewed efforts are needed to strengthen public debt management given a more complex post-restructuring debt portfolio. Importantly, new borrowing programs should closely align with the program objectives, in order to support strong fiscal constraints and mitigate debt vulnerabilities," it noted.

The IMF Working Paper also noted that a sensible public investment program and a sound procurement process would help the authorities get a bigger bang for the buck.

The IMF emphasizes that maintaining fiscal prudence is critical for Sri Lanka to regain market access, attract investment, and avoid another debt crisis. These measures, combined with structural reforms, are essential to place public debt on a sustainable downward trajectory.