Wednesday, July 22 2026
Wednesday, July 22 2026
MONETABRIEF – Sri Lanka should boost the capacity of the Public Debt Management Office quicky the International Monetary Fund said, after a mission completed a staff visit to the island.
"While debt restructuring is nearing completion, progress toward building capacity of the Public Debt Management Office needs to accelerate to promote prudent debt management practices,…" Mission Chief Evan Papageorgiou said in a statement.
The PDMO will also have to support Sri Lanka’s eventual return to international capital markets, the statement said.
Sri Lanka's PDMO is a new office, which is separated from the central bank, which used to issue debt in the past.
A controversy rose after Sri Lanka was scammed out of 2.5 million dollars in debt repayments by hackers.
In the past when the Public Dept Department was under the central bank it tended to print money to target the yield curve, trigging currency crises and IMF programs. As the country lost the ability to make foreign payments, import and exchange controls were imposed.
The practice started around February 1952, triggering the first stabilization crisis in 1953/54 and mass protests and shootings shortly after.
Sri Lanka defaulted in 2022 after extreme rate cuts and SRR cuts poured liquidity into the banking system even as taxes were cut, requiring rate hikes.
The have been calls for the central bank's current role of collecting reserves to repay debt as it is mi-used to print money through the monetization of the balance of payments, and leave unsterilized to suppress rates.
When credit picks up or other supply shock drives demand for forex, the central bank then disclaims responsibility for its newly created notes under 'exchange rate as the first line of defence' doctrine.
The resulting currency collapse, fx market panic, and high inflation and also destroys public confidence in reforms and democratically elected governments.
Instead calls have been for money already raised by the PDMO to be given to the central bank, or a commercial bank to buy dollars, without expanding reserve money or depreciating the currency as the central bank does. (Colombo/July01/2026)
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