Sri Lanka is likely to regain access to global capital markets in two years, and even as late as 2028, when the current IMF program ends, Central Bank Governor Dr. Nandalal Weerasinghe believes that the government should refrain from raising funds from the international debt market.
According to Governor Weerasinghe, if the government maintains the current fiscal discipline, there will be no need to tap international markets until at least 2028.
“The decision to raise capital in international markets is a separate decision for the government. Sri Lanka is currently receiving multilateral funding, and the government is managing public finances to narrow budget deficits, allowing for the majority of the deficit to be financed domestically,” he said at a panel discussion at the Invest Sri Lanka 2025 Forum in Colombo yesterday.
Sri Lanka’s current program with the International Monetary Fund (IMF) is scheduled to end in 2027, and the amortization of the country’s ISB is also scheduled for 2028.
However, Dr. Weerasinghe stressed the critical importance of securing access to global financial markets to mitigate potential shocks.
“It is very important that we are able to access markets at any time when needed – for example, any unknown shock, any unforeseen event or any external disruption,” he added.
Dr. Weerasinghe expects the country’s sovereign credit rating to be upgraded once the debt restructuring of the national carrier, Sri Lankan Airlines, is completed. Recently, S&P indicated that it would consider upgrading its long-term foreign currency sovereign credit rating once Sri Lanka completes the restructuring of its remaining foreign currency-denominated commercial debt. Including the US$175 million bond issued by Sri Lankan Airlines and guaranteed by the government. In contrast, other credit rating agencies, such as Fitch Ratings and Moody’s Investors Service, have already upgraded Sri Lanka’s sovereign credit rating, acknowledging the country’s progress in restructuring its sovereign debt and reaching agreements with creditors.
While it is difficult to predict the exact timeline for Sri Lanka to regain market access, he suggested that it could happen within two years.
“I believe that once we achieve a B-grade rating, we will have market access. It is very important for us to be able to access the market,” he reiterated.
Instead of pursuing traditional commercial green bonds, Dr. Weerasinghe recommended that Sri Lanka explore Debt for Nature Swaps (DFNS) to meet its sustainability funding needs. Under this financing arrangement, Sri Lanka has the opportunity to reduce its debt burden in exchange for commitments to environmental conservation. This instrument is often used to assist developing countries in managing their debt while promoting sustainable practices.
In April 2023, Dr. Weerasinghe expressed openness to implementing Debt for Nature Swap programs as part of the country’s debt restructuring efforts. However, a recent poll conducted by the Conservation Strategy Fund (CSF) revealed that approximately 60 percent of the participants believed that Sri Lanka was not yet ready for DFNS or nature-based bonds, while about 40 percent expressed support.
Meanwhile, the Governor stressed that Sri Lanka is on the path to achieving a balanced current account, and stressed that maintaining fiscal deficit control is crucial to ensuring a stable exchange rate.
“Maintaining a balanced current account is linked to other important macroeconomic factors. Therefore, as long as this situation remains positive, we can ensure a stable currency in line with market demand and supply. The market will have to play its role,” he said.
