Wednesday, July 22 2026
Wednesday, July 22 2026
MONETABRIEF – Sri Lanka's foreign debt service will rise from 2.5 billion US dollars in 2025 to 3.2 billion US dollars in 2027, Director General of the Public Debt Management Office Udeni Udugahapattuwa said.
The forecast foreign debt repayment in 2027 is 2.6 billion US dollars, Udugahapattuwa told the parliament's Committee on Public Finance.
Sri Lanka defaulted in peacetime in 2022, in a typical Latin America style default without war, seen after the International Monetary Funds Second Amendment to its articles, after aggressive rate cuts and liquidity injections under flexible inflation targeting (inflation targeting without a clean float).
The central bank also operates a depreciation-biased flexible exchange rate (dishonoring notes created by preventing appreciation of the rupee from positive shocks to the credit system and steeply depreciating the currency at any negative supply shock).
Sri Lanka also printed money to cut rates to target a potential output gap (printing money to cut rates for growth under cover of 5 percent high inflation target) triggering forex shortages from before and after 2020.
IMF gave Sri Lanka's central bank technical assistance to calculate potential output.
In the run up to the default, from 2015 to 2019 instead of repaying debt and collecting reserves with deflationary policy, at an appropriate interest rate, Sri Lanka borrowed heavily in bonds financial markets and also from China as forex shortages came from inflationary rate cuts and buy-sell swaps.
If the central bank cuts rates with inflationary open market operations (or leaves money created to buy dollars unsterilized) private credit will go up and Sri Lanka can default with a budget surplus like Mexico, analysts have warned.
In the first quarter of 2025 the rupee collapsed from 309 to 340 to the US dollars and the central bank missed IMF foreign reserve targets as warned by analysts, amid a budget surplus. (Colombo/July20/2026)
| US Dollar | 340.98 | Sell - |
| Euro | 391.44 | Sell - |
| Japan Yen | 2.114 | Sell - |
| Sterling | 458.31 | Sell - |
| AED | 91.58 | Indi - |
| 3 month bill | 10.13 | .08 ▼ |
| 12-m bill | 10.20% | .01 ▼ |
| Gold | $4035 | - - |
| ASPI | 21,417.80 | 7.19 ▼ |
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