• Prof. Athukorala warns current trends don’t support rapid debt-to-GDP reduction to 95%
• Despite positive primary balance, rising interest payments and continued borrowing pose challenges

Sri Lanka’s target to bring its debt-to-GDP ratio below 95% by 2032 - announced yesterday (30) with the unveiling of the government’s mid-term fiscal strategy - has been described as “ambitious” by University of Peradeniya Economics Professor Wasantha Athukorala, who cautioned that current debt trends do not point to such rapid improvement.

“In terms of public debt-to-GDP being less than 95% of GDP in 2032, this differs from the steady targets that have been achieved and projected till 2029,” Athukorala told The Daily Morning Business.

“If you assess government debt, the IMF has clearly given guidelines on debt targets,” he said, referring to how past projections had largely stayed within achievable margins. The IMF’s Debt Sustainability Analysis itself has carried this 2032 benchmark.

“Central government debt was 108.8% of GDP in 2024, in 2025 was 108.4%, and is set to be 108.3% of GDP in 2026. The furthest projection in 2029 is 101% of GDP,” Athukorala noted, underscoring that the path to 95% by 2032 appears steep.

Speaking in Parliament, Member of Parliament Kaushalya Ariyaratne, who unveiled the fiscal strategy, stated that Sri Lanka would achieve a debt-to-GDP ratio of 95% by 2032.

“In my opinion this target is ambitious. This is what was set for us by the IMF. Reducing debt to GDP to 95% in three years is ambitious,” Athukorala reiterated. He stressed that to achieve this, the government would need to raise revenue while cutting borrowing - an uphill task given that borrowing continues to rise.

For 2025, Sri Lanka’s interest payments alone stand at Rs. 2,950 billion, now the largest expenditure item for the year.

“The expenditure for salaries and wages is actually lower than that of interest payments on the expenditure bill,” Athukorala pointed out.

“If government borrowing increases annually, this would pose an obstacle for this goal. The public debt-to-GDP target would not be so easy to achieve, in my opinion.”

Ariyaratne meanwhile told Parliament that the primary balance goal for 2025-2030 would be a minimum of 2.3% of GDP, aligning steadily with targets set by the IMF.

Sri Lanka’s primary balance from January-April 2024 was Rs. 65 billion, which rose sharply to Rs. 532 billion during the same period in 2025. Athukorala noted this reflected a positive improvement.

“The primary balance expenditure limit is 13% of GDP for 2026, with a forecast of 12.9%. State debt is to be lowered below 95% of GDP by 2032 - and in the long term, to be less than 60% of GDP,” Ariyaratne told lawmakers.

She added that other fiscal targets included government revenue rising to 15% of GDP and public investments exceeding 4% of GDP by 2026. “By 2028, the total budget deficit is to be less than 5% of GDP.”

Yet expenditures have continued to climb. “When it comes to primary balance expenditure, excluding interest payments, between January to April in 2024 and January to April in 2025, we can see there’s been a Rs. 137 billion increase in expenditures,” Athukorala said.

“The change is approximately an 8% increase in expenditure overall, while revenue has increased by 19%. Overall revenue has increased more than expenditure, which is a positive sign, as the deficit may decrease, making the government target for expenditure acceptable.”

Athukorala also pointed out that government public investment rose significantly. In 2024, public investment stood at Rs. 817 billion, rising to Rs. 1,315 billion in 2025 - demonstrating, he said, that the government does have the capacity to expand its investment spending.

In closing, he observed that while the debt reduction target appeared ambitious, the total budget deficit goal seemed within reach. “Total budget deficit reduction also seems possible as it has been on the decline. In 2024 the total budget deficit was 6.8% of GDP, 2025 has been revised to 6.5% of GDP, and the 2026 expectation is at 5.6% of GDP.”

Turning to structural challenges, Athukorala pointed out that Sri Lanka’s current situation is rooted in historical patterns common to many nations in the Global South. “This is not the result of one ruling party; it is the consequence of economic choices and actions by successive governments,” he said.

Meanwhile, the opposition raised concerns over transparency. An SJB Minister charged that economic agreements made with other countries so far have not been disclosed to Parliament. “They have been hidden while the government speaks of financial discipline. When will tender proceedings be made available for viewing on an online system?” he demanded.