Government debt holds steady amid fiscal restraints under IMF

• Total outstanding govt. debt stood at Rs.27,792.41bn by end of Aug. 2023, slightly up from Rs.27,492.03bn at end-2022
• Sri Lanka’s total outstanding government debt shot up from March last year when the rupee was free floated
• Reduced future govt. funding expected as a result of increased tax revenue and budgetary support from multilateral agencies

Total outstanding government debt was little changed during the first eight months of 2023 from the end of last year as rupee debt rose only modestly reflecting the fiscal restraint by the government under the ongoing International Monetary Fund (IMF) programme while the rupee value of the foreign debt fell slightly.   
As a result, the total outstanding government debt stood at Rs.27,792.41 billion by the end of August 2023, slightly up from Rs.27,492.03 billion at the end of last year, the data from the Ministry of Finance cited by the Central Bank showed.  

Sri Lanka’s total outstanding government debt shot up from March last year when the rupee was free floated, inflating both the economy and the rupee value of the foreign currency denominated debt by massive amounts. 
For example, the rupee value of outstanding foreign currency debt, which stood at Rs. 6,492.2 billion by the end of 2021, when the rupee was fixed at around Rs. 200 to a dollar, surged to Rs. 9,546.6 billion by the end of March. 
Subsequently, it increased further to Rs. 10,867.8 billion a month later as the rupee experienced a free fall following the authorities’ decision to let it float earlier in March. This resulted in a significant loss of 80 percent of the currency’s value in 2022.

This sent the total value of the outstanding debt stock of the government from Rs.17,589.4 billion at the end of 2021 to Rs.23,310.1 billion by the end of April 2022 largely due to the translation of the foreign currency debt stock at the devalued exchange rate. 

As of end of August 2023, as per the latest available public debt data, the government’s total outstanding foreign debt was at a rupee equivalent of Rs. 11,401.24 billion. This marks a decrease from the Rs. 12,458.16 billion recorded at the close of 2022.
In a note under the foreign currency debt, the Central Bank said from December 2022 onwards the central government absorbed several outstanding project loans which were previously classified under the Ceylon Electricity Board, Airport and Aviation Services Limited and Sri Lanka Ports Authority. 

Meanwhile, the total domestic debt stock of the government which comprised of Treasury bills and bonds stood at Rs.16,391.17 billion by the end of August compared to Rs.15,033.88 billion by the end of last year.
The authorities said the government would require less money going forward to bridge its budget deficit due to higher tax revenue and the budget support funds that they receive from multilateral agencies.  
This debt stock is composed of the outstanding balance of a government guaranteed foreign currency debt belonging to the Ceylon Petroleum Corporation which was absorbed as part of central government debt effective from December 2022, the Central Bank said.

The Central Bank also said the outstanding Central government debt excludes several debt service payments that became overdue after Sri Lanka announced a debt standstill in April last year. 

“These debt service payments comprise of overdue interest payments of affected debt which deemed to be capitalised as per the Interim Policy. Further, the December 2022 balance excluded the value of principal payments yet to be settled in relation to Sri Lanka Development Bonds from April 2022 till end 2022,” the Central Banka said.
While Sri Lanka has already completed its domestic debt restructuring this year, it is yet to firm up the debt deals they have entered into with its official creditors while they are also yet to reach any agreement with the commercial creditors who hold the sovereign bonds issued by Sri Lanka.