Sri Lanka’s government debt is expected to remain high, with net general government debt projected at 101% of GDP in 2025, following the exclusion of domestic debt from recent restructuring, The Morning reported.

S&P Global Ratings forecasts that, including guarantees for state-owned enterprises, net government debt will gradually decline to around 93.4% of GDP by 2028, with an average annual reduction of 5.3% between 2025 and 2028. According to The Morning, the decline accounts for higher pay-outs on the country’s macro-linked bonds (MLBs).

Sri Lankan banks hold substantial amounts of government debt, with total exposure exceeding 20% of system assets. Interest expenditure remains high, with payments expected to reach 51% of government revenue in 2025 and average roughly 47% from 2025 to 2028.

S&P Global projects real GDP growth of 4.2% in 2025, while supply constraints and persistent underspending on capital expenditure may keep growth around 3.5% over the next three to four years. GDP per capita is expected to reach $4,900 in 2025, with a 10-year weighted average real per capita growth of 2.2%, still below peers with similar income levels.

The ratings agency also noted that strong economic performance and an appreciation of the Sri Lankan rupee could trigger higher pay-outs on MLBs, with coupon payments potentially rising 1.75-2% between 2029 and 2032 and principal repayments increasing 17-22%, depending on the bond series.