However, in 2020 Sri Lankan debt had already ballooned to 101% of its GDP. With foreign reserves severely affected by the pandemic, the country has yet to meet sovereign bonds repayments of roughly 500 million USD and 1 billion USD maturing in January and July 2022 respectively. While much of the debt is due to market borrowings, Sri Lanka also owes large amounts directly to bilateral partners such as China and Japan, as well as to multilateral international organisations such as the World Bank and the Asian Development Bank (ADB). According to Fitch Ratings, the Sri Lankan government will have to allocate around 29 billion USD between now and 2026 to service debt repayments alone.
This policy brief will first discuss the possible causes for Sri Lanka’s indebtedness, assessing both domestic and external factors. Second, it will look into the beneficial impact alternative partners may have through investing in the country. Third, it will enumerate the lessons learnt from the Sri Lankan experience, and how small and medium countries can avoid ending up in similar situations. Finally, this policy brief will provide a set of policy proposals for the EU in order to enhance its presence in the region, while offering corresponding benefits for Sri Lanka.
Authors: Monica Lovito, Aadil Sud and Walter Brenno Colnaghi, EIAS Junior Researchers
Photo Credits: Wikimedia Commons