Sri Lanka tax payers are set to shoulder a massive 100-billion-rupee burden as the government moves to take over state bank loans tied to SriLankan Airlines. Officials say the restructuring will unfold over five years amid solvency pressures.
Sri Lanka tax payers brace for rising costs as state bank debt shift expands
Sri Lanka’s latest debt realignment has placed an immense responsibility on the public as the state prepares to inject 100 billion rupees to absorb long-standing loans linked to SriLankan Airlines. According to senior Treasury officials, the injection will be carried out as equity over five years, beginning with a 25-billion-rupee payment in 2025. This sweeping financial move signals yet another chapter in the prolonged struggle to stabilize the national carrier while protecting state banks from deepening exposure.
Deputy Treasury Secretary A. K. Seneviratne informed the Committee on Public Finance that the restructuring plan includes converting and resettling a mix of local and foreign-currency borrowings previously guaranteed by the Treasury. Documents accompanying the 2026 budget show that the government had guaranteed more than 50 billion rupees in loans from state lenders, including a substantial 44.6-billion-rupee portion from People’s Bank. Additional commitments include around 210 million US dollars in forex borrowings and approximately 30 billion rupees in domestic credit, all slated for restructuring before the end of 2025.
Officials revealed that the newly structured repayment will span five years, with annual settlements of approximately 20 billion rupees in principal. Some of the original loans carried interest rates as high as 16 percent in rupees and about 10 percent in US dollars. Under the revised terms, domestic loans will be priced at SLFR+1, while dollar-denominated loans will be lowered to roughly 6 percent. The immediate impact of reducing rates is expected to produce a “day one loss” of nearly 13 billion rupees, which the state must compensate to maintain bank stability.
Treasury representatives explained that the restructuring plan follows nearly a year of intense negotiations conducted under strict central bank guidelines intended to preserve the solvency of state banks. Authorities drew parallels to similar processes undertaken for energy utility loans, underscoring the government’s effort to adopt uniform restructuring practices for critical, high-risk sectors. A supplementary estimate is also expected to be presented to Parliament to cover additional funding requirements that may arise during implementation.
In 2025 alone, state banks are expected to receive around 25 billion rupees to offset the initial interest-rate adjustment, cover interest obligations for the year, and meet approximately 10 billion rupees in capital repayments. The restructured loans are scheduled to take legal effect in April 2026, marking a significant turning point in the government’s approach to airline-related liabilities.
Committee on Public Finance Chairman Harsha de Silva delivered a stark warning about the scale of the commitment, describing SriLankan Airlines as a “black hole” that siphons vast sums of public funds each year. The airline has also been without a chief executive for the past eight months, raising concerns about governance shortcomings at a time when large fiscal interventions are taking place. Historical patterns show that SriLankan Airlines has repeatedly required massive capital injections, including the issuance of rupee Treasury bonds in the past to raise funds from the market.
In 2011, the government approved the equivalent of 500 million US dollars for the carrier, although not all of the funds were ultimately infused. At the time, the rupee traded below 120 per US dollar. Since then, the currency has sharply depreciated to around 308 per dollar due to inflationary open-market operations and exchange-rate policies. This depreciation has dramatically inflated the value of dollar-denominated loans, deepening losses for state-owned enterprises that borrowed heavily in foreign currency.
Analysts note that Sri Lanka’s public accounting practices have long masked the scale of losses generated by state-owned enterprises, often labeling capital injections as infrastructure spending. In reality, a significant share of this so-called capital expenditure has been directed toward loss-making state entities that could have sought investment independently under private ownership models.
A major element of the restructuring package includes more than 200 million dollars in liabilities tied to a sovereign-guaranteed bond issued by SriLankan Airlines, consisting of 175 million dollars in capital and accumulated interest arrears. Officials said a preliminary agreement has been reached to impose a 15 percent haircut on this bond as part of the broader restructuring effort.
As the country continues to navigate a fragile economic recovery, the latest intervention underscores the persistent challenges facing SriLankan Airlines and raises fresh questions about the long-term sustainability of redirecting vast sums of public money to rescue state-owned enterprises. For Sri Lanka tax payers, this renewed commitment represents not only a financial burden but also a test of the nation’s ability to implement structural reforms that could prevent future cycles of debt dependence.