MONETABRIEF – Sri Lanka will settle about 850 million dollars in debt from August to December 2026, Deputy Minister of Finance Anil Jayantha Fernando said.
The amount include interest, Minister Fernando told MonetaBrief.
The last published International Monetary Fund documents show that Sri Lanka had to settle 2,754 million dollars in dollar debt, including 213 million dollars on restructured debt of the Ceylon Petroleum Corporation over 2026.
The Public Debt Management Office told the Committee of Public Finance in parliament that external debt service in 2026 was around 2.5 billion dollar, perhaps excluding CPC related and borrowings from FCBUs.
The central bank has separately borrowed dollars from the International Monetary Fund during crises created by past rate cuts (guiding interest rates along the desired path), and also from India which it has been settling.
The central bank has taken dollars from banks through buy-sell fx swaps, giving them printed money to artificially boost imports unrelated to actual dollar inflows.
If the central bank transparently borrowed the dollars from banks instead of engaging in buy-sell swaps and creating money, it could retain the reserves without increasing imports and refusing to return the dollars and putting pressure on the exchange rate.
When the central bank refuses to return dollars for the money it prints either through swaps or outright dollar purchases (dishonors the note issue) the exchange rate depreciates, sowing panic in forex markets.
The panic sowed by dishonoring through exchange rate as the first line of defence, then leads to importer front loading, exporter conversion delays, bank NOP spikes (long positions) and capital flight.
Macro-economists then blame on external shocks, speculation or capital flight to escape accountability, analysts have pointed out.
As inflation soars from debasement, politicians are held accountable by the public, trade and exchange controls are tightened, reversing economic reforms.
The Finance Minister also has to face questions in parliament, though he has no control over the inflation biased central bank or has had an opportunity to raise rates to prevent such crises or a default.
Excess liquidity is once again building up in money markets, as foreign investors buy rupee bonds, exporters convert, bank cut NOPs (and go short) and importers delay payments as forward premiums shrink.
Past experience has shown that the monetary authority will dishonor the notes in any kind of negative domestic or external shocks. (Colombo/Aug20/2026)