Sri Lanka is poised to exceed expectations on its debt reduction path, with the IMF projecting a debt-to-GDP ratio of 88.3% by 2032—well below the 95% target. This improved outlook is driven by a stronger exchange rate and rising dollar GDP, signaling progress in the country’s economic recovery.
Debt-to-GDP Ratio Projected at 88.3%, Beating 95% IMF Benchmark Amid Stronger Exchange Rate and Dollar GDP
Sri Lanka is on track to outperform its debt reduction targets, with the International Monetary Fund (IMF) projecting the country’s debt-to-GDP ratio to reach 88.3% by the end of 2032, significantly better than the 95% target set in its Debt Sustainability Analysis (DSA).
According to the IMF’s latest staff report following the fourth review of the Extended Fund Facility (EFF), the country has successfully met all four core debt criteria: programme-period external debt service relief, post-programme gross financing needs (GFNs), foreign exchange (FX) debt service, and total debt stock.
“This positive outlook is primarily driven by an improved exchange rate and higher dollar GDP projections,” the report stated. “Stronger GDP levels are helping to offset higher debt service obligations, improving overall sustainability.”
The IMF noted that the projected 88.3% debt-to-GDP ratio marks an improvement from the 90.3% estimate in the previous review. In addition, the average GFN-to-GDP ratio between 2027 and 2032 is now expected to drop slightly from 12.73% to 12.66%, also beating the DSA target of 13%.
The DSA has been revised to reflect the actual debt stock figures at the end of 2024, and now includes the first application of state-contingent debt instruments (SCDIs) with upper trigger conditions. As a result, the maximum additional payments under these instruments have declined from an average of $242 million to $111 million annually over 2028–2032.
Despite a higher likelihood of triggering upper thresholds due to increased dollar GDP, the IMF confirms that debt sustainability targets remain intact.
This development reflects positively on Sri Lanka’s ongoing economic recovery efforts and reinforces confidence in its long-term fiscal management.