ECONOMYNEXT – Sri Lanka central government debt to gross domestic product ratio edged up to 99.5 percent in June 2025, from 99.1 percent in December, data from the debt management office showed.
The June numbers are up 96.7 percent in March for central government debt and 101.5 percent when SOE guaranteed debt is included. (Corrected)
RELATED : Sri Lanka debt to GDP ratio edges up in March 2025
For comparison purposes debt numbers for December are also made from debt data from the Debt Management Office quarterly bulletins.
The central government debt to GDP ratio in the central bank annual report was 96.1 percent for end 2024.
Domestic central government debt went up to 19,655 billion rupees in June 2025 from 18,892 billion rupees in December.
Foreign debt went up to 11,140 billion rupees from 10,732 billion rupees, taking the total to 30,795 billion rupees by June 2025, from 29,624 billion rupees in December.
State enterprise guaranteed debt was 1,431 billion rupees, unchanged from 1,432 billion rupees in December.
The debt to GDP ratio including state enterprises, on a rolling basis to June 2025, went up to 104.11 percent in June from 103.9 percent in December.
Sri Lanka’s nominal GDP went up to 30,954 billion rupees in the four quarters to June 2025 from 29,899 in December.
The June numbers are slightly below 96.7 percent in March for the central government debt and
101.5 percent when SOE guaranteed debt is included.
Sri Lanka’s economy has been recovering strongly from a currency crisis in 2022, since ending by aggressive statistical macro-economic policy (potential output targeting and high-cost-of-living flexible inflation targeting).
However Sri Lanka has import duties and import control which prevent natural export diversification and makes it impossible for zones outside the country to become export competitive.
Sri Lanka’s geographical position as a logistics hub is also blocked by import taxes as well as rent seeking restrictions.
Sri Lanka’s inflation started to diverge from the US and other Western nations from around 1980 making budgets unmanageable, pushing up nominal interest rates as macro-economists destroyed capital using unanchored monetary policy (b-b-c policy, competitive exchange rates, REER targeting).
With recent stable exchange rates, Sri Lanka’s nominal interest rates have started to come down.
Classical economists have pointed out that it is not possible to bring down interest rates by injecting reserve money as believed by post-1923 central banks which create forex shortages and currency crises in the process.
“It can, I think, be made manifest, that the rate of interest is not regulated by the abundance or scarcity of money, but by the abundance or scarcity of that part of capital, not consisting of money,” Adam Smith pointed out.
Under stable exchange rates, the ability of macro-economists to destroy capital and savings of the public is constrained to the level capital is destroyed (or conserved) by the de facto anchor currency central bank.
Sri Lanka defaulted in 2022 with a steep currency collapse after around a decade of applying aggressive statistical monetary doctrines rejecting classical theory (price-specie-flow mechanism) which led to serial currency crises and a frenzy of foreign borrowings.
As domestic capital was destroyed, foreign borrowings initially kept rates down.
Sri Lanka’s interest rates are now eating slowly despite heavy net foreign repayments (indicated by a current account surplus).
Sri Lanka’s economy has recovered strongly from the crisis amid low inflation and stable government policies, which made economic decisions predictable.
However, of late some hiccups have emerged with the Sri Lanka customs blocking the import of electric vehicles over a dispute involving the gazette over motor size which has ended up in court. A decision to remove SVAT amid Trump tariffs has also ended up in court.
Meanwhile, there is also a renewed threat of capital decumulation taxes, which have hit the past hit long term growth and housing stock under consecutive left leaning post-independence administrations in Sri Lanka.
Ironically, the push for capital decumulation taxes is now coming from the newly ‘progressive’ West which is in trouble amid the single policy rate and heedless spending for stimulus since the collapse of the housing bubble made Keynesianism fashionable and the lessons of the 60s and 70s were forgotten.
The current administration has opposed a tax on houses without cash flow, which critics say amounts to expropriation. (Colombo/Oct03/2025 – Corrected March data)
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