Medium Term Debt Management Strategy 2026-2030 and Annual Borrowing Plan 2026

Debt Strategy 2026-2030 · file page 1

MEDIUM TERM DEBT
MANAGEMENT STRATEGY

2026-2030

AND

 ANNUAL BORROWING

PLAN - 2026








PDMO

P u b l i c D e b t M a n a g e m e n t O f f i c e | S r i L a n k a

Public Debt Management Office
Ministry of Finance, Planning and Economic Development

 2026 Public Debt Management Office

The Secretariat (3rd Floor)
Colombo 00100
Sri Lanka
info@
pdmo.gov.lk

Debt Strategy 2026-2030 · file page 2

MEDIUM TERM DEBT
MANAGEMENT STRATEGY

ROAD MAP FOR STRATEGIC AND PRUDENT DEBT

MANAGEMENT

2026 -2030


PDMO

P u b l i c D e b t M a n a g e m e n t O f f i c e | S r i L a n k a

Public Debt Management Office
Ministry of Finance, Planning and Economic Development

 2026 Public Debt Management Office

The Secretariat (3rd Floor)
Colombo 00100
Sri Lanka
info@
pdmo.gov.lk

Debt Strategy 2026-2030 · file page 3

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Page 2

Content

1. Executive Summary  ... 
 3

2.
Overview of the Public Debt Management in Sri Lanka  ... 
 4

2.1    Legal Framework  ... 
 4

2.2
Institutional Framework  ... 
 4

2.3 Debt Management Objectives  ... 
 4

3. Medium Term Debt Management Strategy (MTDS)   ... 
 5

3.1 Debt Coverage Under MTDS  ... 
 5

3.2 Medium Term Debt Management Strategy 2025-2029 (MTDS 2025-2029)  ... 
 5

4. Structure of the Existing Government Debt Portfolio  ... 
 6

4.1 Composition of Government Debt  ... 
 6

4.2 Government Debt as Percent of Gross Domestic Product (GDP)  ... 
 7

4.3 Redemption Profile of the Existing Government Debt  ... 
 8

4.4 Cost and Risk Embedded in Existing Debt Portfolio  ... 
 9

4.4.1. Interest Cost of the Government Debt Portfolio  ... 
 10

4.4.2. Refinancing Risk  ... 
 10

4.4.3. Interest Rate Risk  ... 
 11

4.4.4 Currency Risk  ... 
 11

5. Debt Restructuring Programme and Its Impact on the Government Debt Sustainability  ... 
 12

5.1 Key achievements of DEBT restructuring process  ... 
 12

6. Baseline Macro Economic Assumptions  ... 
 15

7. Medium Term Debt Management Strategy for 2026-2030 (MTDS 2026-2030)  ... 
 16

7.1 Debt Management Targets at the end of 2030  ... 
 16

7.2 Financing Strategy for 2026-2030  ... 
 17

7.3 Implementation Plan of the MTDS 2026-2030  ... 
 19

7.4 Limitations and challanges  ... 
 19

8. Conclusion  ... 
 21

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1. Executive Summary

Medium Term Debt Management Strategy

2026 -2030

1. Executive Summary

Sri  Lanka  has  undertaken  a  major  transformation  to  align  its  debt  management  practices  with
internationally  recognized  standards.  Enactment  of  the  Public  Debt  Management  Act  No.  33  of  2024
(PDMA) and the establishment of the Public Debt Management Office (PDMO) are the cornerstones for
the initiative taken by the Government to strengthen debt management operations in Sri Lanka. Having a
strong  legal  background  and  centralized  institutional  framework  are  imperative  for  achieving  debt
sustainability  targets  set  out  by  the  International  Monetary  Fund  (IMF)  under  its  debt  sustainability
analysis. The reforms relevant for enhancing debt management introduces international best practices,
promoting transparency, efficiency, and strategic coordination in managing public debt.

Under the PDMA, the PDMO is mandated to prepare a Medium-Term Debt Management Strategy (MTDS)
on a rolling five-year basis, and it shall be updated annually. The MTDS provides a structured roadmap for
managing  public  debt  sustainably,  balancing  cost  and  risk  while  meeting  the  Government's  financing
needs and supporting fiscal stability.

The MTDS 2026-2030, was developed in line with the above requirements. It focuses on strengthening
debt  sustainability  and  reducing  vulnerabilities  such  as  interest  rate  risks  and  refinancing  risks.  An
analysis of the current debt portfolio identified refinancing risk, stemming from a high concentration of
short-term  Treasury  bills,  and  interest  rate  risk,  due  to  low  average  time  to  re-fixing  (ATR),  as  key
challenges. Interest payments as a share of Government revenue have also been recognized as a crucial
cost indicator.

The  MTDS  2026-2030  has  been  primarily  designed  to  prudently  manage  both  the  cost  and  risk  of
Government  debt  portfolio  through  the  above  analysis.  The  MTDS  2026-2030  has  been  designed  to
finance 90 percent of its gross borrowing requirements through domestic borrowing, with the remaining
10   percent  sourced  from  external  borrowing  in  2026.  From  2027  to  2030,  the  share  of  domestic
borrowing is expected to reduce to 85 percent with a discreet equilibrium with the external financing.

The strategy aims to reduce reliance on short-term debt, lowering Treasury bills' share from 10.7 percent
at the end of 2025 to 5 percent of total debt by 2030; extend the average debt maturity from 6.8 to 8 years
by 2030; and to decrease the interest payment-to-revenue ratio from 52.2 percent to 35 percent over the
strategy period.

The Medium-Term Debt Management Strategy (MTDS) 2026-2030 thus establishes a clear framework for
managing Sri Lanka's government debt over the next five years. Prudent composition of domestic and
external  financing,  extending  debt  maturities,  and  mitigating  refinancing  and  interest  rate  risks,  the
strategy seeks to strengthen debt sustainability, lower borrowing costs, and ensure timely debt servicing.
The Government's commitment to revenue based fiscal consolidation, the development of the domestic
debt  market,  implementation  of  liability  management  operations,  and  enhancement  of  investor
confidence will collectively contribute to securing Sri Lanka's long-term debt sustainability.

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2. Overview of the Public Debt Management in Sri Lanka

2.1    LEGAL FRAMEWORK


The Public Debt Management Act No. 33 of 2024 (PDMA), which was enacted on June 18, 2024 is
a consolidated piece of legislation in line with international best practices. It provides modern
techniques  in  the  Public  Debt  Management,  with  a  more  streamlined,  effective,  and  forward-
looking framework for managing Sri Lanka's public debt, in place of fragmented legal provisions
that were available across various pieces of legislations previously.


2.3 DEBT MANAGEMENT
OBJECTIVES


The  Public  Debt  Management  objectives
are clearly defined under Section 3 of the
Public  Debt  Management  Act  No.  33  of
2024 as;

a. to  meet  financing  needs  and  debt

payment  obligations  on  a  timely
basis;
b. to  borrow  at  the  lowest  costs  as

possible  over  the  medium  to  long
term,  consistent  with  a  prudent
degree of risk, and
c. to  promote  the  development  of  the

domestic debt securities market.




2.1    LEGAL FRAMEWORK

The Public Debt Management Act No. 33 of 2024 (PDMA), which was enacted on June 18, 2024 is
a consolidated piece of legislation in line with international best practices. It provides modern
techniques  in  the  Public  Debt  Management, with a  more  streamlined,  effective,  and  forward-
looking framework for managing Sri Lanka's public debt, in place of fragmented legal provisions
that were available across various pieces of legislations previously.

2.2
INSTITUTIONAL
FRAMEWORK


The Public Debt Management Office (PDMO) was
established  on  December  2,  2024,  under  the
PDMA
marking
a
major
milestone
in
strengthening
Sri
Lanka's
public
debt
management framework. Since its establishment,
the  PDMO  has  made  a  noteworthy  progress  in
building
institutional
capacity,
establishing
regulatory foundations connected to PDMA, and
developing modern debt management practices.
All  the  functions  relevant  for  the  Public  Debt
Management,  which  were  previously  dispersed
across multiple institutions, were brought under
the PDMO.

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3.2 MEDIUM TERM DEBT MANAGEMENT

STRATEGY 2025-2029 (MTDS 2025-2029)


In pursuant to comply with the legal requirement, the
MTDS 2025-2029 was developed immediately after the
establishment  of  the  Public  Debt  Management  Office.
MTDS 2025-2029 assessed four strategies, and of which
the strategy which is more focused on domestic market
borrowing  was  selected  with  targeting  the  gradual
reduction of the T-bills and increasing the maturity of
the domestic debt portfolio. It also focused on increasing
the fixed rate debt to minimizing the interest rate risk.
To  minimize  the  refinancing  risk,  it  was  targeted  to
reduce the debt refixing in one year.

Debt data used for the MTDS 2025-2029 was primarily
obtained from the relevant Treasury Departments and
the  Central  Bank  of  Sri  Lanka  (CBSL).    Several
assumptions  on  the  external  and  domestic  debt
restructuring  process  were  used  considering  the
ongoing  data  reconciliation  process  at  the  time  of
preparing the MTDS. As forecasted at the end 2025, it is
noticed  that  the  amount  of  T-bills  was  successfully
reduced to 10.7 percent of the total debt portfolio from
13.9 percent at the end of 2024 in accordance with the
expected target.  Further, Debt Maturing in one year as a
percentage  of  total  debt  has  been  reduced  by  2.90
percent by end  2025 from 19.1  percent at the  end of
2024.  The  ATM  of  the  total  debt  portfolio  has  also
indicated a positive direction.















3. Medium Term Debt Management Strategy (MTDS)

In  pursuant  to  Section  11  of  the  PDMA,  the  PDMO  shall  formulate  the  Medium  Term  Debt
Management Strategy (MTDS) on a rolling five year horizon and shall update the MTDS annually.
MTDS shall be consistent with the Medium-Term Fiscal Framework (MTFF) of the Government and
takes into account macroeconomic and financial market conditions, the cost and risks embedded
in  the  current  public  debt  portfolio,  the  availability  of  financing  from  various  creditors,  and
vulnerabilities that could impact future borrowing requirements and debt service costs.

With the approval of the Cabinet of Ministers, the MTDS shall be tabled in Parliament not later than
second reading of the Appropriation Bill of the year for which the strategy is prepared.  The MTDS
provides a strategic roadmap for managing the Government' s financing requirements, emphasizing
the need to achieve the most cost-effective borrowing while ensuring debt levels remain stable and
sustainable.

 3.1  DEBT  COVERAGE
UNDER MTDS

The
Medium-Term
Debt
Management
Strategy
(MTDS)  covers  only  the
external  and  domestic  Debt
of the Government that falls
under its direct control. The
publicly
guaranteed
and
non-guaranteed
debt
of
State-Owned
Enterprises
(SOEs)
and
subnational
entities  are  not  included  in
the MTDS.

For the purpose of preparing
the  MTDS,  external  debt
refers  to  debt  contracted
with  parties  outside  Sri
Lanka,  as  well  as  debt
incurred
domestically
in
foreign currencies. Domestic
debt refers to debt incurred
within
Sri
Lanka
and
denominated
in
local
currency.

3.1  DEBT  COVERAGE
UNDER MTDS

The
Medium-Term
Debt
-
Management
Strategy
(MTDS)  covers  only  the
external  and  domestic  Debt
of the Government that falls
under its direct control. The
publicly
guaranteed
and
non-guaranteed
debt
of
State-Owned
Enterprises
(SOEs)
and
subnational
entities  are  not  included  in
the MTDS.

For the purpose of preparing
the  MTDS,  external  debt
refers  to  debt  contracted
with  parties  outside  Sri
Lanka,  as  well  as  debt
incurred
domestically
in
foreign currencies. Domestic
debt refers to debt incurred
within
Sri
Lanka
and
denominated
in
local
currency.

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4. Structure of the Existing Government Debt Portfolio

4.1 COMPOSITION OF GOVERNMENT DEBT


As  of  end  June  2025,  Sri  Lanka's  total  Government  debt  stock  stands  at  LKR  30,795  billion,
comprising  both  domestic  and  external  debt  obligations.  The  domestic  debt  accounts  for  the
majority  share,  representing  approximately  64  percent  of  total  debt,  while  external  debt
represents the remaining 36 percent.

Table 01: Composition of the Existing Government Debt Stock as of end June 2025

LKR Billion

Domestic Debt
19,655
T-bills
3,921
T-bonds
15,039
Other
695
External Debt
11,140
Multilateral
4,035
Bilateral
3,300
Market Borrowings
3,805
Total
30,795




The composition of the government debt
stock by instruments as of end June 2025
is depicted in Figure 01.



Bilateral

11%

Multilateral

13%

Internationa

l Soverign

Bonds

10%
Term Loan

Facilities

2%
Treasury

bills
13%

Traesury

bonds

49%

Other
Domestic

Loans

2%

Figure 01- Outsanding Governemnt Debt Stock -

by Instruments as of End June 2025

LKR Billion

Domestic Debt
19,655
T-
T bills
3,921
T-
T bonds
15,039
Other
695
External Debt
11,140
Multilateral
4,035
Bilateral
3,300
Market Borrowings
3,805
Total
30,795

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4.2 GOVERNMENT DEBT AS PERCENT OF GROSS DOMESTIC PRODUCT

(GDP)
















Source: Department of Census and Statistic and Public Debt

Management Office
   e- Estimate




115%

101%

99%
97%

85%

90%

95%

100%

105%

110%

115%

120%

 -

 5,000

 10,000

 15,000

 20,000

 25,000

2022
2023
2024 2025 e

Percent of GDP

LKR billion

Figure 02: Government Debt

Stock as Percent of GDP

External Debt
Domestic Debt

Debt to GDP

Over the past seven decades, Sri
Lanka’s total Government debt
stock has increased sharply, with
the debt-to-GDP ratio rising from
17 percent in 1950 to 114.2 percent
in 2022.

Following
the
economic
liberalization
in
1977,
the
Government’s reliance on foreign
borrowings grew rapidly, pushing
the
foreign
debt-to-GDP
ratio
above 30 percent, compared to an
average of around 10 percent
during 1950–1976. By the 1990s,
Sri Lanka’s external debt-to-GDP
ratio had risen to around 50
percent.

Since early 2000s, the proportion of
domestic debt within the total debt
stock has gradually increased. The
overall
debt
stock
expanded
substantially between 2010 and
2018, and consequently, by 2022,
Sri
Lanka’s
debt-to-GDP
ratio
reached its highest level in history.


Reflecting the lingering effect of the debt restructuring and the ongoing revenue based fiscal
consolidation under the Extended Fund Facility (EFF) program supported by the International
Monetary Fund (IMF), the Debt to GDP ratio was reduced to 99.1 percent (gross basis) in 2024 and
a further reduction is expected in 2025.

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Page 8

4.3 REDEMPTION PROFILE OF THE EXISTING

GOVERNMENT DEBT


The  redemption  profile  of  the  existing  Government  debt  details
breakdown  of  the  maturity  structure  of  the  existing  Government  debt,
typically showing when and how much of the debt will be paid back or
redeem over the period of time.

Outstanding Treasury bills (T-bills) at the end of 2025 are estimated at
LKR 3,600 billion and is scheduled for redemption in 2026 highlighting
short-term refinancing risk as depicted in Figure 03. It can be mitigated
through effective revenue and cash flow management.  At the beginning of
2024 and 2025 also the T-bills stock was at LKR 4,092 billion and LKR
4,070 billion respectively and governmnet has refinnaced those amounts.

Figure  03  -  Redemption  Profile  of  the  Existing  Government  Debt  as
estimated for End 2025 - in billions of LKR


Source: Public Debt Management Office
External debt includes loans contracted in FX within Sri Lanka
Domestic debt represent debt contracted in LKR
e- Estimated

0

1,000

2,000

3,000

4,000

5,000

6,000

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

External
Domestic
T-bills to be
settled in 2026 -
LKR 3,600
billion  (e)

Separately, the domestic
redemption  profile  is
largely  dominated  by
Treasury
bonds
(T-
bonds), with a moderate
increase  in  maturities
expected
in
2028
amounting to LKR 2,155
billion.  In  response  to
the
2022
economic
crisis,
the
issuances
have been concentrated
on
short
term
to
medium term segments
of
the
yield
curve,
resulting  to  a  higher
concentration  of  bond
redemptions  falling  in
2027-2033.
However,
with
recent
improvements  in  fiscal
performance,
market
stability,
and
macroeconomic
indicators,
investor
interest
is
gradually
shifting
toward
medium- and long-term
maturities.


On the external front, the external debt restructuring with the Official Creditor Committee (OCC)
has resulted to evenly spread out future repayments, reducing the concentration of external debt
redemptions  in  the  near  term.  The  new International  Sovereign  Bonds  issued  under  the  bond
exchange follow an amortizing structure with varying triggers and coupon rates, contributing to a
diversified  debt  portfolio.  As  shown  in  Figure  03,  foreign  exchange  (FX)  debt  repayments  are
expected  to  rise  gradually  and  peak  in  2038,  due  to  commencement  of  capital  repayment  of
restructured external debt and will reduce gradually thereafter until 2045.

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Page 9

4.4 COST AND RISK EMBEDDED IN EXISTING DEBT PORTFOLIO

The cost and risk associated with the existing Government debt portfolio has been assessed
through key risk and cost indicators.

             Table 02: Cost and Risk Embedded in Existing Government Debt Portfolio- forecast of End of 2025

Risk Indicators
External
debt1

Domestic
debt2

Total
debt
Amount (in LKR billions)
11,801
19,238
31,039
Amount (in USD billions)
38.1
62.1
100.1
Nominal debt as percent of GDP
36.9
60.1
97.0
PV as percent of GDP3
34.2
60.1
94.4

Cost
of
debt4

Interest payment as percent of
GDP

1.3
6.9
8.2

Interest Payment as  percent of
revenue

11.8
40.4
52.2

Weighted Av. IR (percent)
3.4
11.5
8.5

Refinancing
risk4

ATM (years)
9.7
4.6
6.8

Debt maturing in 1yr (percent
of total)

2.9
26.1
16.2

Debt maturing in 1yr (percent
of GDP)

1.3
15.7
17.0

Interest
rate risk4

ATR (years)
7.9
4.4
5.9

Debt refixing in 1yr (percent of
total)

23.1
29.6
26.8

Fixed rate debt including T-bills
(percent of total)

78.7
96.1
88.7

T-bills (percent of total)
0.0
18.7
10.7

FX risk
FX debt  (percent of total debt)
37.8

Short Term FX  debt (percent of
reserves)

0.0192

Source: Public Debt Management Office, Ministry of Finance, Planning and Economic Development


1 External debt includes loans contracted domestically in FX

2 Domestic debt includes LKR denominated debt contracted domestically

3 PV as percent of GDP is calculated based on projected debt service payments where discount rate of 5% is
applied to those instruments on concessional or semi-concessional terms.

4 Cost-Risk indicators that use projected cash flows such as weighted average interest rate, refinancing and
interest rate risks use projected exchange rate assumptions.

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Page 10

Cost of the debt portfolio is measured by interest payments as a percentage of GDP and as a percentage of
revenue. Meanwhile, the risks in the debt portfolio are evaluated in terms of refinancing risk, interest rate
risk, and exchange rate risk which have been elaborated below;

4.4.1. Interest Cost of the Government Debt Portfolio

Due to excess borrowings, including borrowings at commercial rates, the nominal interest payments have
shown a significant increase from around LKR 980 billion in 2020 to a projected LKR 2,650 billion in 2025.
This reflects growing debt servicing costs. The interest payments for external debt for 2025 includes USD
1,032 million (approximately LKR 312 billion) of which USD 794 million (approximately LKR 240 billion)
has already been paid up to 30.09.2025.


Source: Ministry of Finance Planning and Economic Development

4.4.2. Refinancing Risk

Out of the total debt portfolio, refinancing risk is highly concentrated in the domestic debt portfolio which
consists of 12 percent of T-bills and 48 percent of T-bonds as end of September 2025. The shorter Average
Time  to  Maturity  (ATM)  and  the  higher  proportion  of  debt  maturing  within  one  year  in  the  domestic
segment present clear liquidity and rollover risks. In the post-crisis period, efforts have been made to extend

71.7%71.9%

79.2%
80.5%

65.7%

52.2%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

 -

 1,000

 2,000

 3,000

 4,000

 5,000

 6,000

2020 2021 2022 2023 2024 2025

(Proj)

Interest Payment to Revnue

LKR billions

Axis Title

Figure 04: Intrest Payment as Percent

of Revenue

Interest Payment

Total Revenue

Interest Payment to Revenue (%)

Interest Payment-to-Revenue ratio
remains around 70–81 percent
between 2020 and 2023, indicating
that
a
substantial
portion
of
Government income was used for
interest payments. After 2023, due
to
fiscal
improvement
through
stronger revenue growth and the
reduction of interest payments
during
the
debt
restructuring
process, the ratio shows a downward
trend, falling to about 52.2 percent
by 2025 (projected). However, it is
still representing more than half of
Government revenue. This highlights
the significant fiscal constraints
experienced during both the pre-
crisis and immediate post-crisis
periods. However, with the positive
effects of ongoing fiscal reforms, this
burden is gradually easing, and the
interest payment-to-revenue ratio is
showing signs of improvement.

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Page 11

the maturity profile of domestic debt. Notably, in the second half of 2025, the market preference has shown
a shift towards medium- to long-term Government securities, reflecting improving market confidence.

In contrast, the external debt portfolio appears prudently managed, with longer maturities and lower near-
term  obligations,  largely  due  to  maturity  extensions  achieved  through  the  external  debt  restructuring
process. The external debt restructuring with official creditors including, Official Creditor Committee and
the China Exim Bank restructuring eases Sri Lanka's short-term debt burden by deferring payments until
its  economy recovers. Sri Lanka  gains substantial debt relief on such debt service due, during the IMF
programme  period.    Sri  Lanka  received  capital  grace  periods  until  2028,  reduced  interest  rates,  and
progressive amortization with final repayments in 2043. From the restructuring of International Sovereign
Bonds (ISBs), Sri Lanka achieved an extension of the average maturity profile of around 6 years.

4.4.3. Interest Rate Risk

The domestic debt portfolio carries higher interest rate risk in comparison to the External debt portfolio,
primarily due to its shorter Average Time to Refixing (ATR) and a larger share of debt requiring refixing
within one year. This is largely driven by the high volume of Treasury bills (T-bills), which mature within a
year. T-bills account for 10.7 percent of the total debt portfolio as forecasted to end 2025, contributing to
both refinancing and interest rate risks. However, this exposure is partially mitigated by the substantial
proportion of fixed-rate instruments in the domestic portfolio, which supports interest cost stability despite
the short-term maturity structure.

In contrast, the external debt profile, although it includes a slightly higher share of floating-rate instruments
amounting to 21.3 percent of external debt portfolio, benefits from a significantly longer ATR, reducing the
frequency of refinancing or repricing needs. Going forward, maintaining a strategic focus on extending the
ATR  and  prioritizing  fixed-rate  issuances  will  be  critical  to  strengthening  resilience  against  potential
interest rate shocks.


4.4.3. Interest Rate Risk

The domestic debt portfolio carries higher interest rate risk in comparison to the External debt portfolio,
primarily due to its shorter Average Time to Refixing (ATR) and a larger share of debt requiring refixing
within one year. This is largely driven by the high volume of Treasury bills (T-
T bills), which mature within a
year. T-
T bills account for 10.7 percent of the total debt portfolio as forecasted to end 2025, contributing to
both refinancing and interest rate risks. However, this exposure is partially mitigated by the substantial
proportion of fixed-rate instruments in the domestic portfolio, which supports interest cost stability despite
the short-term maturity structure.

In contrast, the external debt profile, although it includes a slightly higher share of floating-rate instruments
amounting to 21.3 percent of external debt portfolio, benefits from a significantly longer ATR, reducing the
frequency of refinancing or repricing needs. Going forward, maintaining a strategic focus on extending the
ATR  and  prioritizing  fixed-rate  issuances  will  be  critical  to  strengthening  resilience  against  potential
interest rate shocks.


4.4.4 Currency Risk

Structural FX risk is moderate, given the
sizeable  share  of  foreign  currency-
denominated debt (37.8 percent of total
debt) as depicted in Table 02. Significant
portion of the external debt portfolio is
denominated in US Dollars, with smaller
exposure to Japanese Yen, Chinese Yuan
and  Special  Drawing  Rights  (SDRs).
Prudent exchange rate management and
hedging  strategies  where  feasible  are
important to contain this risk. Continued
efforts
to
manage
the
currency
composition of debt, build reserves, and
improve domestic debt market depth will
further reduce FX-related vulnerabilities.

US Dollars

68%

Special
Drawing

Rights

(SDR)

17%

Yen

7%

Yuan
Renminbi

4%

Euro

3%

Other

1%

Figure 05: Composition  of External Debt

by Currency (Percent)

Debt Strategy 2026-2030 · file page 15 printed page 12

Page 12

5.  Debt  Restructuring  Programme  and  Its  Impact  on  the

Government Debt Sustainability

5.1 KEY ACHIEVEMENTS OF DEBT

RESTRUCTURING PROCESS


1. Immediate Financial Relief and Debt Reduction

The restructuring provided a 41 percent reduction in the Net
Present Value (NPV) of the country’s restructured debt, which
significantly eased the debt burden. This reduction created fiscal
space, enabling the Government to reallocate funds toward critical
recovery and reform initiatives.

The restructuring also capped Sri Lanka’s debt service in foreign
currencies at 4.5 percent of GDP annually from 2027 to 2032,
providing vital relief and allowing the Government to better manage
its fiscal obligations. This reduction is crucial for avoiding default and
enabling investments in essential sectors like social services and
infrastructure.

2. Economic Stabilization and Fiscal Discipline

The debt restructuring was aligned with the IMF’s Extended Fund Facility (EFF), which helped set
clear targets for fiscal discipline. Key objectives include reducing the public debt stock to 95
percent of GDP by 2032 and keeping Gross Financing Needs (GFN) below 13 percent of GDP
annually from 2027 to 2032.

The introduction of Macro-Linked Bonds (MLBs) and Governance-Linked Bonds (GLBs) further
ensured flexibility in debt servicing and incentivized fiscal reforms. MLBs link debt payments to
economic performance, while GLBs offer additional relief if fiscal and governance reforms are
achieved.

3. Domestic Debt Relief and Financial System Stability

The Domestic Debt Operation (DDO) in 2023 played a critical role in relieving pressure on domestic
financing without destabilizing the financial system.  Key actions include;

x
Redenomination of foreign currency-denominated bonds to local currency bonds with
variable coupons, providing liquidity relief.

Sri
Lanka’s
debt
restructuring
process
has played a critical role
in the country’s effort to
stabilize its economy
after the crisis in 2022.
The
restructuring
provided
both
immediate
financial
relief
and
long-term
benefits,
significantly
altering the trajectory
of the country's public
debt and offering a
pathway toward fiscal
and economic stability.

Debt Strategy 2026-2030 · file page 16 printed page 13

Page 13

x
Reprofiling of Treasury bonds held by Provident Funds, reducing interest payments and
easing pressure on domestic financial institutions.

x
Restructuring of short-term Treasury bills into longer-term instruments, providing
additional fiscal flexibility.

These measures reduced domestic debt service by 1.2 percent of GDP annually between 2023-
2027, averting a domestic financial crisis.

4. Improved External Debt Sustainability and Reserve Position

The restructuring reduced Sri Lanka’s external debt service by USD 17 billion from 2023-2027,
which was crucial for easing balance of payments pressures and improving foreign exchange
reserves. The IMF debt sustainability target on maintaining the Foreign Exchange (FX) Debt Service
at a cap of 4.5 percent of GDP annually from 2027-2032, will help to sustain the external debt
services and reserve position of the country.

5. Upgrades of Sri Lanka Credit Ratings

Sri Lanka’s credit ratings have seen
significant upgrades in late 2024 and 2025,
following the country’s successful sovereign
debt restructuring and the approval of an
IMF Extended Fund Facility (EFF). These
upgrades from Fitch Ratings, Moody's
Investors Service, and S&P Global Ratings
reflect the country’s efforts to stabilize its
economy,
reduce
default
risk,
and
implement fiscal reforms after its 2022
sovereign default.

Factors Driving the Credit Rating Upgrades

IMF Support: The approval of a USD 2.9 billion IMF loan under the Extended Fund Facility (EFF) assisted
stabilizing the country’s macroeconomic condition. The IMF program included crucial structural
reforms and fiscal targets to restore debt sustainability.

Economic Stabilization: Sri Lanka managed to stabilize its currency and reduce inflation after the
restructuring. Improved foreign exchange reserves and fiscal reforms have helped restore a degree of
macroeconomic stability.


IMF Support: The approval of a USD 2.9 billion IMF loan under the Extended Fund Facility (EFF) assisted
stabilizing the country’s macroeconomic condition. The IMF program included crucial structural
reforms and fiscal targets to restore debt sustainability.

Economic Stabilization: Sri Lanka managed to stabilize its currency and reduce inflation after the
restructuring. Improved foreign exchange reserves and fiscal reforms have helped restore a degree of
macroeconomic stability.

Key Upgrades

x
Fitch Ratings upgraded Sri Lanka’s long term
foreign currency issuer default rating from
“Restricted Default (RD)” to “CCC+” in
December 2024.

x
Moody’s Investor Service raised Sri Lanka’s
long term foreign currency issuer rating from
“Ca” to “Caa1” with a stable outlook in
December 2024.

x
S&P Global Ratings upgraded Sri Lanka’s long
term foreign-currency rating from “Selective
Default (SD)” to “CCC+ in September 2025.

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Impact of the Credit Rating Upgrades

These upgrades reduce the risk of future defaults and signal positive approach towards accessing
international markets. The upgrades reflect an improved debt management outlook, with debt-to-GDP
ratios expected to decline gradually over the next decade and have positively impacted investor
sentiment, boosting confidence in Sri Lanka’s capacity to manage its debt and implement necessary
reforms.

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Page 15

6. Baseline Macro Economic Assumptions

The feasibility of the Debt Management Strategy highly depends on a sound Macro-Economic
Framework of the country that underpins projection of growth, inflation, interest rates, fiscal
balances and exchange rates.  Given the mutual interdependency between the Debt Management
Strategy and the Macro Economic Framework, maintaining the consistency among both strategies
is critical.

Therefore, the MTDS 2026-2030 has been developed align with Macro Fiscal Framework defined
under the Medium Term Fiscal Framework 2026-2030 and Annual Budget forecasts for the year
2026. For the preparation of MTDS, it is assumed that the risk of the baseline macro-economic
outlook and their potential impact on the Debt Management Strategy is constant throughout the
strategic period. The exchange rate for the medium term was forecasted by using Purchase Power
Parity Model, which takes the inflation forecast of USA and Sri Lanka in to account. SOFR rate was
forecasted using the US treasury forecast and the interest rates for domestic T-bills and T-bonds
was forecasted based on Average Weighted Prime Lending Rate (AWPR).

The Macro Fiscal Framework 2026-2030 has been developed align with the debt reduction and
debt sustainability objectives defined under the Public Financial Management Act No. 44 of 2024.
These targets are aligned with the debt sustainability targets given under IMF-EFF agreement.

1. Reducing the ratio of public debt to GDP to below 95 percent by 2032,
2. Maintaining the central Government’s annual gross financing needs below 13 percent
of GDP, on average, in 2027-32,
3. Maintaining the central Government’s annual debt service in foreign currency below
4.5 percent of GDP in every year in 2027-32

In the macroeconomic context, the decreasing trend of the gross public debt to GDP ratio will allow
the Government to give greater emphasis to the reduction of financing costs. As a combined
outcome of ongoing fiscal reforms and the Debt Management Strategy, which focuses on securing
financing from cost-effective sources while maintaining a prudent level of risk, the Government
intends to realize the debt sustainability targets.

6. Baseline Macro Economic Assumptions

The feasibility of the Debt Management Strategy highly depends on a sound Macro-Economic
Framework of the country that underpins projection of growth, inflation, interest rates, fiscal
balances and exchange rates. Given the mutual interdependency between the Debt Management
Strategy and the Macro Economic Framework, maintaining the consistency among both strategies
is critical.

Therefore, the MTDS 2026-2030 has been developed align with Macro Fiscal Framework defined
under the Medium Term Fiscal Framework 2026-2030 and Annual Budget forecasts for the year
2026. For the preparation of MTDS, it is assumed that the risk of the baseline macro-economic
outlook and their potential impact on the Debt Management Strategy is constant throughout the
strategic period. The exchange rate for the medium term was forecasted by using Purchase Power
Parity Model, which takes the inflation forecast of USA and Sri Lanka in to account. SOFR rate was
forecasted using the US treasury forecast and the interest rates for domestic T-T bills and T-T bonds
was forecasted based on Average Weighted Prime Lending Rate (AWPR).

The Macro Fiscal Framework 2026-2030 has been developed align with the debt reduction and
debt sustainability objectives defined under the Public Financial Management Act No. 44 of 2024.
These targets are aligned with the debt sustainability targets given under IMF-EFF agreement.

1.
Reducing the ratio of public debt to GDP to below 95 percent by 2032,
2.
Maintaining the central Government’s annual gross financing needs below 13 percent
of GDP, on average, in 2027-32,
3.
Maintaining the central Government’s annual debt service in foreign currency below
4.5 percent of GDP in every year in 2027-32

In the macroeconomic context, the decreasing trend of the gross public debt to GDP ratio will allow
the Government to give greater emphasis to the reduction of financing costs. As a combined
outcome of ongoing fiscal reforms and the Debt Management Strategy, which focuses on securing
financing from cost-effective sources while maintaining a prudent level of risk, the Government
intends to realize the debt sustainability targets.

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Page 16

7. Medium Term Debt Management Strategy for 2026-2030

(MTDS 2026-2030)

The strategic framework for Public Debt Management in Sri Lanka is formulated based on the explicit
risk tolerance and cost objectives of the Government debt portfolio. It incorporates measures aimed
at deepening the domestic debt market and re-entering to the external financial market and is
underpinned by medium-term macroeconomic projections, ensuring consistency with fiscal and
monetary policy objectives.

7.1 DEBT MANAGEMENT TARGETS AT THE END OF 2030

Table 3: DEBT MANAGEMENT TARGETS AT THE END OF 2030

Cost and Risk Indicators
Existing Level
(End 2025)

Target Level
(End 2030)

Tolerance

Average Time to Maturity

x
Domestic Debt Portfolio

x
Total Debt Portfolio

 4.6 Yrs
 6.8 Yrs

 6 Yrs
 8 Yrs

1+/-

T-bills Percentage to the Total Debt
10.7%
 5%
1+/-

Debt Refixing in One Year (Percentage to the Total)
26.8%
22%
1+/-

Debt Maturing in one year (percent of GDP)
17.0%
10%
2+/-

Interest Payments to Revenue (As a percentage)
52.2%
35%
5+-

Source: Public Debt Management Office

Accordingly, four alternative financing strategies were tested, each with different borrowing
compositions, to ensure an optimal trade-off between cost and risk. These strategies considered the
availability, cost, and risk associated with each potential financing source. Key factors taken into
account included the high reliance on T-bills in the domestic debt portfolio, the narrow maturity profile
of domestic debt, the availability of concessional external financing, the potential to re-enter
international financial markets, and the preference for issuing FX-denominated domestic debt
securities. These considerations guided the selection of the optimal financing strategy for the period
2026–2030.



Table 3: DEBT MANAGEMENT TARGETS AT THE END OF 2030

Cost and Risk Indicators
Existing Level
(End 2025)

Target Level
(End 2030)

Tolerance

Average Time to Maturity

x
Domestic Debt Portfolio

x
Total Debt Portfolio

4.6 Yrs
6.8 Yrs
6 Yrs
8 Yrs
1+/-

T-T bills Percentage to the Total Debt
10.7%
5%
1+/-

Debt Refixing in One Year (Percentage to the Total)
26.8%
22%
1+/-

Debt Maturing in one year (percent of GDP)
17.0%
10%
2+/-

Interest Payments to Revenue (As a percentage)
52.2%
35%
5+-

Source: Public Debt Management Office

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7.2 FINANCING STRATEGY FOR 2026-2030


Financing strategy for 2026–2030 provides strategic guidelines for borrowing over the medium term,
aimed at achieving the debt management targets outlined in Table 2.  The key strategic directions are
as follows:

a. Borrowing Composition: Maintain a borrowing composition of 90 percent from domestic

sources for 2026. Thereafter, decrease the domestic borrowing by 5 percent, with an
intension to prudently balance the domestic and external borrowing composition to
strategically prepare for the external debt service obligations in post 2028.
b. External Financing Strategy: Maximize low-cost concessional financing from bilateral and

multilateral sources. Simultaneously, explore alternative low-cost financing opportunities
available with official lenders, international financial institutions, and the international
sovereign bond market.
c. Domestic Market Strategy: On the domestic front, aim to manage refinancing risk by

gradually reducing reliance on T-bills. This will be supported by the planned issuance of
fixed-rate Treasury bonds with maturities of 3, 5, 8, 10, 12, and 15 years, to extend the
average maturity and smooth the redemption profile. In addition, a limited issuance of FX-
denominated bonds in the domestic market is being considered, to attract domestic
investors with FX liquidity into the Government securities market.

For the effective functioning of the MTDS, the Public Debt Management Office focuses on;

I.
Developing the Government domestic bond market, by widening the investor base and
seeking the possibility of developing the retail market for Government debt securities. A
comprehensive analysis of the primary dealer system and domestic debt market will be
conducted and appropriate measures will be undertaken accordingly.
II.
Road mapping to re-enter to international sovereign bond market. The maturity structure of
the newly issued International Sovereign Bonds denominated in US dollars, under the debt
restructuring process, reflects significant redemptions starting from 2028. Accordingly, it is
essential to initiate preparatory measures well in advance to re-enter in to the international
sovereign bond market. While strong macroeconomic fundamentals and a favorable credit
rating remain key prerequisites, enhancing investor relations and improving debt transparency
will be equally critical. These preparatory actions will be proactively undertaken to ensure a
smooth refinancing process.

7.2 FINANCING STRATEGY FOR 2026-2030

Financing strategy for 2026–2030 provides strategic guidelines for borrowing over the medium term,
aimed at achieving the debt management targets outlined in Table 2. The key strategic directions are
as follows:

a.
Borrowing Composition: Maintain a borrowing composition of 90 percent from domestic
sources for 2026. Thereafter, decrease the domestic borrowing by 5 percent, with an
intension to prudently balance the domestic and external borrowing composition to
strategically prepare for the external debt service obligations in post 2028.
b.
External Financing Strategy: Maximize low-cost concessional financing from bilateral and
multilateral sources. Simultaneously, explore alternative low-cost financing opportunities
available with official lenders, international financial institutions, and the international
sovereign bond market.
c.
Domestic Market Strategy: On the domestic front, aim to manage refinancing risk by
gradually reducing reliance on T-T bills. This will be supported by the planned issuance of
fixed-rate Treasury bonds with maturities of 3, 5, 8, 10, 12, and 15 years, to extend the
average maturity and smooth the redemption profile. In addition, a limited issuance of FX-
denominated bonds in the domestic market is being considered, to attract domestic
investors with FX liquidity into the Government securities market.

Debt Strategy 2026-2030 · file page 21 printed page 18

Page 18

III.
Undertaking liability management operations to proactively manage the structure and the
risk profile of the existing Government debt portfolio. Liability management activities are
expected to be undertaken for the purpose of managing the refinancing risk of the existing
debt portfolio, developing the domestic debt market, potentially lowering the debt servicing
cost. In addition, initiatives will be taken to carry out liability management operations for the
external debt portfolio such as currency SWAPs with the primary objective to reduce the
currency risk of the debt portfolio.
IV.
Ensuring the governance and transparency of debt management thorough refining and
expanding the public debt publications and engagement strategy. This includes the
release of the Annual Report, which will provide comprehensive insights into the
management of public debt. In addition, existing publications, such as the Quarterly Debt
Bulletin and Semi- annual Debt Data Report, will be upgraded in terms of both quality
and coverage, ensuring more detailed and timely information for stakeholders.


A dedicated website for the Public Debt Management Office will also be established to
centralize information, improve user access, and facilitate more interactive
communication with the public and market participants. Furthermore, the Annual
Borrowing Plan (ABP) will outline the Government’s financing strategy for the coming
year. This plan will be developed in alignment with the guidelines of the MTDS 2026-
2030, ensuring that the Government’s borrowing approach is consistent with long-term
fiscal goals. The Domestic Debt Securities Auction Calendar will be aligned with the ABP
and published on a rolling quarterly basis. This will ensure the market is consistently
updated, with a three-month advance notice prior to any specific debt issuance.

V.
Strategically utilizing the cash reserves to ensure financial stability, lower borrowing
costs, and mitigate refinancing and interest rate risk. The cash buffer will be prudently
deployed to repay maturing debt instruments, such as Treasury bills or short-term
bonds, without incurring new debt or rolling over debt at potentially higher interest
rates. The optimum level of Cash Buffer will be determined in due consideration for debt
service obligations (liquidity risk), volatility in revenues or market access (shock
absorption) and Contingency for emergencies, aiming to hold enough cash to cover
short-term obligations while avoiding excessive idle funds.  The PDMO will regulate
utilization of cash buffer in a structured manner to mitigate interest rate and refinancing
risks, ensuring a systematic approach and avoiding ad hoc practices.

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Page 19

7.3 IMPLEMENTATION PLAN OF THE MTDS 2026-2030


The MTDS 2026–2030 will be implemented by the Public Debt Management Office
(PDMO) in close coordination with key stakeholders, including fiscal, monetary,
policy makers. The detailed implementation plan for the MTDS 2026-2030 will be
outlined in the Annual Borrowing Plan for 2026 (ABP-2026), which serves as the
operational framework for the Government’s borrowing strategy.
In preparing the ABP-2026, the PDMO will work closely with monetary policymakers
and the cash managers of the Government to ensure alignment and facilitate
seamless execution of the MTDS 2026-2030. This collaborative approach will
enhance the coherence of debt management operations with overall fiscal and
monetary policy, fostering a well-integrated approach.
The PDMO will conduct regular periodic reviews of the MTDS 2026-2030 to assess
its progress and effectiveness. These reviews will be presented to the Public Debt
Coordinating Committee, ensuring transparent oversight and ongoing alignment
with national debt management objectives. If deviations from the planned strategy
are identified, the PDMO will take proactive corrective measures to address any
challenges and ensure that the targets of the MTDS 2026-2030 are met in a timely
and efficient manner.

7.4 LIMITATIONS AND CHALLENGES


While the preparation of the MTDS 2026–2030 provides a robust framework for
guiding public debt management over the medium term, several limitations and
challenges may affect both achieving the set targets and the effective implementation
of the strategy. Key limitations and challenges of MTDS 2026-2030 are;

I.
Availability, coverage, and reliability of debt data used in preparation of the
MTDS 2026-2030. In the preparation of MTDS 2026-2030 only the
government debt data has been captured. Through the acquisition of
Commonwealth Meridian Debt Management System by the PDMO, current
limitations of not having a single system will be addressed and it will
provide a single debt database for all domestic and external debt data.

Debt Strategy 2026-2030 · file page 23 printed page 20

Page 20

II.
Exchange rate volatility and interest rate fluctuations introduce additional
risks to external debt portfolios, which may be difficult to fully hedge or
predict.

III.
The baseline macroeconomic projections and assumptions used in the
preparation of MTDS 2026-2030 may change over time. Uncertainties
regarding economic growth, inflation, fiscal deficits, interest rates, and
exchange rates can significantly influence the actual outcomes.

IV.
Since the domestic debt market has not been developed to the optimum
level, the domestic market remains shallow, with limited investor
diversification and short maturities, restricting the government’s ability to
extend the yield curve or refinance maturing debt at low cost. External
financing options are influenced by access to concessional resources and
international market conditions, which may limit flexibility in borrowing
choices.

V.
Coordination gaps among key stakeholders such as departments of the
Ministry of Finance, Planning and Economic Development, Central Bank of
Sri Lanka, and line ministries, may lead to inconsistencies among key
strategic approaches related to debt management, fiscal, and monetary
policies.

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Page 21

8. Conclusion


The MTDS 2026–2030 represents a comprehensive and forward-looking approach to
managing Sri Lanka’s government debt. By focusing on minimizing risks such as refinancing
and interest rate exposure, the strategy aims to achieve long-term debt sustainability while
reducing borrowing costs. A key element of the strategy is the continued emphasis on
domestic market-oriented financing, with a planned decrease in reliance on short term T-bills
over the time.
The MTDS 2026-2030 seeks to improve debt sustainability by reducing short-term debt,
extending debt maturities, and lowering the interest payment-to-revenue ratio, which will
enhance fiscal flexibility and reduce the burden of debt servicing.
To ensure the successful implementation of the MTDS 2026–2030, the PDMO will focus on
expanding the domestic investor base, improving debt transparency, and enhancing
governance in debt management. These efforts will strengthen investor confidence,
supporting a more stable and sustainable debt management environment.
The MTDS 2026–2030 provides a robust framework for managing Sri Lanka's Government
debt, supporting fiscal stability and resilience in the face of both domestic and global economic
challenges. Its successful implementation of MTDS 2026-2030 will contribute significantly to
prudently manage the Government debt portfolio, ensuring the debt sustainability of Sri
Lanka.






8. Conclusion

The MTDS 2026–2030 represents a comprehensive and forward-looking approach to
managing Sri Lanka’s government debt. By focusing on minimizing risks such as refinancing
and interest rate exposure, the strategy aims to achieve long-term debt sustainability while
reducing borrowing costs. A key element of the strategy is the continued emphasis on
domestic market-oriented financing, with a planned decrease in reliance on short term T-bills
over the time.

The MTDS 2026-2030 seeks to improve debt sustainability by reducing short-term debt,
extending debt maturities, and lowering the interest payment-to-revenue ratio, which will
enhance fiscal flexibility and reduce the burden of debt servicing.

To ensure the successful implementation of the MTDS 2026–2030, the PDMO will focus on
expanding the domestic investor base, improving debt transparency, and enhancing
governance in debt management. These efforts will strengthen investor confidence,
supporting a more stable and sustainable debt management environment.

The MTDS 2026–2030 provides a robust framework for managing Sri Lanka's Government
debt, supporting fiscal stability and resilience in the face of both domestic and global economic
challenges. Its successful implementation of MTDS 2026-2030 will contribute significantly to
prudently manage the Government debt portfolio, ensuring the debt sustainability of Sri
Lanka.

Debt Strategy 2026-2030 · file page 25 printed page 22

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Debt Strategy 2026-2030 · file page 26 printed page 23

ANNUAL BORROWING

PLAN

SINGLE YEAR FINANCING STRATEGY

2026













PDMO

P u b l i c D e b t M a n a g e m e n t O f f i c e | S r i L a n k a

Public Debt Management Office
Ministry of Finance, Planning and Economic Development

 2026 Public Debt Management Office

The Secretariat (3rd Floor)
Colombo 00100
Sri Lanka
info@
pdmo.gov.lk

Debt Strategy 2026-2030 · file page 27 printed page 24

No text on this page (image, chart or blank page).

Debt Strategy 2026-2030 · file page 28 printed page 25

PDMO

SINGLE YEAR FINANCING STRATEGY

OF SRI LANKA

ANNUAL BORROWING PLAN 2026

LEGAL
REQUIREMENT
FOR THE
PUBLICATION OF
ANNUAL
BORROWING PLAN
(ABP)

The legal foundation
for the preparation of
the ABP has been
established under the
Public
Debt
Management Act No.
33 of 2024 (PDMA),
which mandates that
the ABP be formulated
in alignment with the
Medium Term Debt
Management Strategy
(MTDS). Accordingly,
pursuant to Section 15
of the PDMA, the
Public
Debt
Management
Office
(PDMO) is required to
prepare an ABP for
each financial year to
meet the aggregate
borrowing
requirements of the
Government of Sri
Lanka in accordance
with the Appropriation
Act for that year.
Furthermore,
the
PDMA stipulates that
the borrowing plan
must be reviewed at
least semiannually.

1. INTRODUCTION

Preparation of a clear and actionable
plan through an Annual Borrowing Plan
(ABP) for the year ahead is a primary
requirement
to
ensure
effective
implementation of the Medium-Term
Debt Management Strategy (MTDS).
The ABP serves as a single-year
financing strategy designed to meet the
Government’s Gross Financing Needs
(GFN) for the respective fiscal year.

The ABP supports the debt manager’s
primary objective to ensure that the
Government’s financing requirements,
including debt service obligations, are
met in a timely manner and at the lowest
possible cost, subject to a prudent level
of risk. Taking into account projections
of revenues, expenditures, and debt
service payments, the ABP outlines the
financing strategy to meet the GFN for
the upcoming year. In this regard, the
ABP operationalizes the first-year
implementation of the MTDS.

The ABP is a fundamental component
of
the
Government’s
borrowing
framework. It sets out the objectives,
principles, and guidelines governing
the Government’s domestic and
external borrowings for the given fiscal
year.

The ABP - 2026 outlines the
Government’s borrowing strategy and
proposed borrowing mix for the year
2026, focusing on meeting financing
needs while minimizing borrowing
costs and managing associated risks.
The ABP - 2026 is fully aligned with
the Medium-Term Debt Management
Strategy for 2026–2030 (MTDS-
2026-2030).

In compliance with the PDMA, a
detailed version of ABP - 2026
including the tentative instruments to
be used, sources of borrowing, and
the indicative timing of borrowing
operations will be published prior to
the commencement of the 2026
financial year.

A B P
26

CONTENT

1. INTRODUCTION

2. BORROWING REQUIREMENT

3. BORROWING COMPOSITION

4. BORROWING MIX

5. MONITORING AND REPORTING

6. CONCLUSION

Debt Strategy 2026-2030 · file page 29 printed page 26

*As per Section 2
(b)
of
the
Appropriation
Bill,  2026,  the
difference
between
the
total  short-term
borrowing
raised
during
the
financial
year  2026  and
the
total
settlement
of
short-term
borrowing made
during
the
financial
year
2026  shall  only
be considered in
deciding
the
volume of short-
term  borrowing
for the purposes
of
calculating
the
borrowing
made during the
financial
year
2026.
Accordingly,  the
redemptions  of
T-bills  has  not
been
included
for  the  amount
required  for  the
debt repayment.
** Excluding the
T-bills
to
be
matured  within
the  year  2026.
As
per
the
estimation,
there  are  LKR
3,600 billions of
T-bills
to
be
matured  within
the  year  2026
and it has been
considered
in
deciding
the
borrowing
composition.

2. Borrowing Requirement


Total
estimated
expenditure of the
Government which is
LKR 8,990 billion in
2026 to be financed
through tax and non-
tax revenues, grants
and debt. Revenue
and
grants
are
projected
at
LKR
5,355 billion leaving a
deficit of LKR 3,740
billion. This will be
financed
through
external
and
domestic borrowings
of LKR 700 billion
and
LKR
3,040
billion,
respectively
(Table 01).

The external gross
borrowing of LKR
700 billion relates to
projected
disbursements
on
already
contracted
loans
and
new
borrowing
from
multilateral
and
bilateral
lending
agencies,
while
domestic borrowing
of LKR 3,040 billion
relates to new debt to
be raised from the
domestic
market
through issuances of
Government
securities in 2026.

TABLE 01: Gross Financing Needs -2026

2026 Estimate

LKR billion

Primary Expenditure
4,485

Recurrent Expenditure
3,105

Capital Expenditure
1,380

Government Debt Servicing
4,495

Interest Payment
2,617

Debt Repayment*
1,878

Provisions for Advanced Account

Operations

10

Total Expenditure
8,980

Total Revenue
5,355

Adjustment for Book /Cash Value for

Government Securities

105

Gross Financing Requirement**
3,740

Domestic Financing
3,040

External Financing
700

Gross Borrowing Limit as per the

Appropriation Bill

3,740



According to Table 01, the government’s total borrowing

requirement for 2026 is estimated at LKR 3,740 billion, excluding

the LKR 3,600 in Treasury bills (T-bills) maturing during the year.

The Government plans to settle LKR 500 billion of these maturing

T-bills using available cash reserves, thereby reducing the T-bills

amount to be refinanced through the market to LKR 3,100 billion.

Consequently, the total financing requirement, including the

refinancing of maturing T-bills, is projected at LKR 6,840 billion for

2026.

PDMO

Debt Strategy 2026-2030 · file page 30 printed page 27

3. Borrowing Composition

In line with the
MTDS 2026–2030,
the
Government
plans to meet 88
percent of its gross
borrowing
requirement
through
LKR
denominated
domestic
debt

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External Financing

In 2026, the Government plans to finance LKR 700 billion, through external sources. Of
this, the Government expects to receive LKR 490 billion from external multilateral and
bilateral lending agencies including LKR 250 billion form Asian Development Bank, LKR
50 billion from the World Bank and LKR 190 billion from other bilateral and multilateral
sources for project and program financing. The additional LKR 210 billion as the 7th and
8th tranches of the Extended Fund Facility from the International Monetary Fund (IMF).

Domestic Financing

In 2026, 90 percent of the total financing requirement, amounting to LKR 6,140 billion,
is projected to be raised through domestic market. This financing will be secured via
the issuance of Government securities through public auctions. Treasury bonds
primarily will serve as the medium- and long-term domestic debt instrument for the year.
The Government intends to raise LKR 2,940 billion by issuing LKR-denominated
Treasury bonds in the domestic market, with maturities ranging from 3 years to 15
years. The Government also plans to issue LKR 100 billion worth of FX-denominated
Treasury bonds in the domestic market during the year, with maturities of up to 3
years.Treasury bills, amounting to LKR 3,100 billion will serve as the short-term
instruments with maturities of up to one year. The Government plans to issue Treasury
bills with maturities of 91 days, 182 days, and 364 days in the domestic market.The
auction calendar for 2026 will be developed and published by the Public Debt
Management Office on a quarterly basis, with updates for each rolling three-month
period. This calendar will cover both Treasury bills and Treasury bonds, and will be
based on the annual borrowing plan and the cash flow forecast for the year 2026.

FX
Denominared

Financing
LKR 800 bn

LKR
Denominated

Financing
LKR 6,040 bn

Total Gross

Finacing
Requirement
LKR 6,840 bn

External
Financing

LKR 700 bn

Domestic
Financing
LKR 6,140 bn

Total Gross

Finacing
Requirement
LKR 6,840 bn

Figure 02 : Borrowing Composition – 2026 ( By Residency)

Figure 01 : Borrowing Composition – 2026 ( By Curruncy)

instruments, with
the remaining 12
percent
to
be
financed
through
FX
denominated
debt instruments.

Accordingly,
LKR 800 billion
will be financed
through
FX
denominated
debt instruments
in which LKR 100
billion ( around
USD 300 million)
will be raised by
issuing
FX
denominated T-
bonds
to
the
domestic market
as depicted in
Figure 03.

.

PDMO

Debt Strategy 2026-2030 · file page 31 printed page 28

Domestic Borrowings-  LKR 6,140 billion
External Borrowing, LKR 700

billion

Treasury bills           50%
Multilateral                         75%

Treasury bonds        50%
Bilateral
25%


Table 02

Source

Amount
(LKR bn)
Percentage
Bilateral
175
3
Multilateral
525
8
T-bills
3100
45
LKR denominated T- bonds
2940
43
FX Denominated T- bonds
100
1
Total
6840
100




































































3%

8%

45%

43%

1%

Figure 03: Proposed Borrowing Mix - 2026


Bilateral


Multilateral


T-bills


LKR denominated T-
bonds


FX Denominated T-
bonds

6. Conclusion

ABP 2026 presents a strategic approach to meet the government's financing needs while ensuring debt

sustainability. By focusing on domestic financing through Treasury bills and Traesury bonds and minimizing non-

concessional external borrowing, the plan aims to achieve cost and risk targets set out under MTDS 2026- 2030.

It plans to diversify financing sources, including multilateral and bilateral fixed debt and sovereign bonds, to

mitigate external risks. With quarterly monitoring and a commitment to optimizing borrowing cost with prudent

degree of risk, the ABP 2026 supports fiscal stability and risk management, fostering long-term debt sustainability.

4. Proposed Borrowing Mix




5. Monitoring

&Reporting

The PDMO will

monitor
the

execution of the

ABP
2026

throughout
the

year, with quarterly

reviews to ensure

targets are met and

any
necessary

adjustments
are

made.

PDMO

Debt Strategy 2026-2030 · file page 32 printed page 29

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