Govt. says 90% of external debt restructuring completed 

• Govt. holds investment call end-July to discuss debt restructuring
• Treasury says restructuring terms reached with 98% of external creditors
• Points to Public Debt Management Office becoming fully operational by Jan. 2026 
• Confident that MLBs align with SL’s economic trajectory
• SriLankan Airlines’ $ 175 m Bond restructuring negotiations to conclude in coming months
• Investors appraised about US tariff negotiations
• Says Govt. exploring ways to minimise trade balance with US and open up markets 

The Government has agreed on restructuring terms with more than 98% of its external creditors and has completed over 90% of its public external debt restructuring, according to a Treasury statement issued after an investment call hosted jointly by the Finance, Planning and Economic Development Ministry and the Central Bank of Sri Lanka (CBSL) on 31 July. 

Bilateral debt negotiations have concluded with the China EXIM Bank, Saudi Arabia, Japan, India, France, and Hungary, covering a significant portion of the $ 5.82 billion owed to the Official Creditor Committee of 17 countries. Talks with Kuwait for $ 95 million are ongoing. Other bilateral debt of around $ 200 million is close to finalisation.

On the commercial side, the Government restructured 98% of its $ 10.59 billion International Sovereign Bonds (ISBs) in December 2024. Implementation has also been completed for the $ 3.20 billion owed to China Development Bank. Remaining negotiations include two commercial banks and some holders of 2022 Bonds who did not participate in the exchange, representing less than $ 50 million in exposure. One bank has agreed to terms, and discussions with the other are near completion. Hamilton Reserve Bank (HRB), which claims to hold 25% of the 2022 Bonds, has filed legal action seeking full repayment. 

Certain other bondholders have entered discussions to settle under the most-favoured-creditor terms of the 2024 exchange offer.

SriLankan Airlines’ $ 175 million Government-guaranteed Bonds remain under negotiation. The Government said it is working to conclude all outstanding talks in the coming months in line with International Monetary Fund (IMF) debt sustainability targets and comparability of treatment principles.

The Finance Ministry established its Public Debt Management Office in December 2024 to oversee debt strategy. The office is expected to be fully operational by January 2026 and will evaluate proactive liability management operations.

Commenting on the increasing likelihood of Macro-Linked Bonds (MLBs) being triggered and thus increasing debt payments, the Government noted that adjustments to the MLBs have been designed to align with Sri Lanka’s macroeconomic performance. “Current projections suggest a higher likelihood of triggering upside scenarios, reflecting the strength of Sri Lanka’s economic recovery,” the Treasury told shareholders. 

“While debt payments are higher under the upside scenarios of the MLBs, they have been structured to ensure they remain consistent with Sri Lanka’s long-term public debt sustainability and capacity to repay its external debt,” the Government said. Sri Lanka’s performance under the IMF program remains strong, even assuming that the MLBs are triggered, it said.

Total Government debt amounted to $ 101.2 billion as at the end of December 2024, and total State-owned enterprises debt was $ 4.8 billion. Total public debt stood at 106.2% of GDP as at the end of December 2024.

The transcript of the investor Q&A following the presentation is reproduced below in full:

Q: Please provide an update on trade/tariff discussion with the US?

A: Sri Lanka reached a positive conclusion with the reduction of the US trade tariffs from the initial 44% to 30% later, and being finalised at 20% on 31 July 2025. Sri Lanka is now among the handful of countries that managed to get a 24% rate cut from the original 44% and Sri Lanka is on a level ground with the key regional competitors, particularly in the apparel sector, which forms the bulk of US-bound shipments.

The Government will engage with exporters, local industries, and State institutions to recalibrate its export strategy in response to the tariff.

The Sri Lankan Government is continuing to explore ways to minimise the trade balance with the US and will open up markets, making it easier to do business in Sri Lanka. Initiatives such as zero-tolerance on corruption and governance reforms are components of a broader economic offering meant to make Sri Lanka a more attractive trading partner for the US. As Sri Lanka’s approach is wholesome, both US companies and local exporters will gain from a more efficient and transparent system.

Q: Could you offer more detail on which commercial facilities (other than HRB) have not yet been fully restructured?

A: The remaining commercial creditors included in the scope of Sri Lanka’s public debt restructuring consist of (i) smaller commercial creditors of the Central Government – this includes two commercial banks and certain holders of the 2022 Bonds (excluding HRB) who did not participate in the exchange offer in December 2024 – with total exposure of the Central Government amounting to less than $ 50 million, and (ii) holders of the $ 175 million Government-guaranteed SriLankan Airlines (SLA) Bonds.

Discussions with the Central Government’s commercial creditors are ongoing. Agreement on terms has been achieved with one of the two commercial banks and is close to being achieved with the other. Certain holders of the 2022 Bonds who did not participate in the exchange offer have come forward to achieve a settlement in line with the exchange offer’s Most Favoured Creditor Clause, and discussions are currently ongoing. The Government plans to finalise and implement restructuring agreements with all parties in the coming months, in line with its commitments to the IMF debt sustainability targets and comparability of treatment principles.

Discussions between SLA, the Government, and the holders of SLA Bonds are also ongoing. The Government underlines its commitment to conclude this restructuring process in line with IMF-supported program parameters and comparability of treatment principles.

Q: Any plans for a liability management exercise in the near future as far as external debt is concerned?

A: The Finance Ministry established its Public Debt Management Office (PDMO) in December last year, with the aim of overseeing the management of Sri Lanka’s public debt. The office is gradually scaling up and is expected to be fully operational by January 2026.

Under its mandate, the PDMO will be tasked with carrying out a proactive debt management strategy. The office will be continuously evaluating the potential benefits of such operations, as and when appropriate.

Q: Does the Republic worry about the increasing likelihood of the MLBs being triggered and thus increasing debt payments?

A: Adjustments to the MLBs have been designed to align with Sri Lanka’s macroeconomic performance. Current projections suggest a higher likelihood of triggering the upside scenarios, reflecting the strength of Sri Lanka’s economic recovery.

While debt payments are higher under the upside scenarios of the MLBs, they have been structured to ensure they remain consistent with Sri Lanka’s long-term public debt sustainability and capacity to repay its external debt. The Republic’s performance under the IMF Debt Sustainability Analysis (DSA) remains strong even assuming that the MLBs are triggered.

Q: Any timelines or update on restructuring of SriLankan Airlines’ debt which you can share with investors?

A: SLA and the Government are engaging with the holders of the outstanding SLA Bonds. The Government remains committed to finalising the restructuring process in alignment with the key principles that have guided Sri Lanka’s public debt restructuring from the outset: compliance with the IMF debt sustainability parameters and with the comparability of treatment principles.