SJB MP Dr. Harsha de Silva has disputed both the warnings and assurances being expressed over Sri Lanka’s ability to meet its foreign debt repayments from 2028, saying the country’s gross foreign reserves alone cannot determine whether it will be able to comfortably meet its obligations.
Responding to questions over differing statements on future debt repayments, de Silva said neither a definitive claim that Sri Lanka would be unable to repay its debt nor an assurance that there would be no difficulty could be made at present.
“Technically, I would say both views are incorrect,” de Silva said.
He said the more relevant measure was the IMF’s Assessing Reserve Adequacy (ARA) metric, which considers factors including the country’s external debt obligations, broader financial conditions and exports when assessing whether reserves are sufficient to withstand external shocks.
De Silva said an ARA level of around 100% was generally considered a comfortable level for a country to continue meeting its external obligations.
He said Sri Lanka’s gross official reserves currently stood at around US$6.5 billion, while projections had indicated reserves of around US$12 billion would be required to reach the targeted reserve adequacy level.
De Silva expressed doubt that Sri Lanka could bridge that gap by the end of next year and therefore questioned whether the country could reach an ARA level of 100% within that period.
He stressed, however, that this did not mean Sri Lanka would necessarily be unable to repay its debt, saying future repayment capacity would depend on the country’s reserve adequacy and its ability to withstand external shocks.
De Silva also noted that headline gross reserve figures include foreign currency liabilities, including swaps, which need to be considered when assessing the country’s actual external buffer. (Newswire)