Sri Lanka’s Debt Crisis Is So Bad The Government Doesn’t Even Know How Much Money It Owes
Posted on March 7th, 2017

Trying to develop its infrastructure to increase its economic potential has plunged Sri Lanka deep into a pit of debt, pushing the country to the brink of bankruptcy and prompting an IMF bailout.

The official estimate of what Sri Lanka currently owes its financiers is $64.9 billion — $8 billion of which is owned by China. The country’s debt-to-GDP currently stands around 75% and 95.4% of all government revenue is currently going towards debt repayment.

This debt situation is clearly not sustainable, but there’s more:

In addition to racking up large amounts of government debt via the usual channels, it’s now becoming evident that the previous government also utilized state-owned enterprises to take out additional loans on its behalf. While the full extent of this extracurricular lending seems unknown, current estimates peg it at a minimum of $9.5 billion — which is all off the books of the finance ministry.

We still don’t know the exact total debt number,” Sri Lanka’s prime minister admitted to parliament earlier this month.

Sri Lanka Prime Minister Ranil Wickremesinghe (L), Sri Lanka Cricket president Thilanga Sumathipala (C), Sports Minister Dayasiri Jayasekera (2R) and Law and Order Minister Sagala Ratnayake (R) in Colombo on September 20, 2016. (ISHARA S.KODIKARA/AFP/Getty Images)

Much of Sri Lanka’s pile of debt accrued in the process of initiating an entire buffet of large-scale and extremely expensive infrastructure projects under the direction of former president Mahinda Rajapaksa.

Between 2009 and 2014 Sri Lanka’s total government debt tripled and external debt doubled, as the country engaged in a number of costly undertakings — such as attempting to build a new, multi-billion dollar city in the middle of a jungle (which includes the world’s emptiest international airport), constructing one of the most expensive highways ever made, as well as other pricey endeavors, such as spending $42 million just to remove a rock from the harbor at Hambantota.

But this doesn’t necessarily mean that Sri Lanka’s current administration is doing much better. Under President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe, who came to office at the beginning of 2015, domestic debt grew by 12% and external debt by 25% without starting any new large-scale infrastructure projects.

This fact has not gone unnoticed by former president Mahinda Rajapaksa, who recently issued a series of public taunts, claiming that with the money the current administration has so far borrowed he could have built two Mattala Airports, one Hambantota Port, one Norochcholai Coal Power Plant, one Colombo-Matara Highway, one Colombo-Katunayake Highway, not one, but two Colombo Port cities and one 500 MW Sampur Coal Power Plant…”

Sri Lanka may be in a debt trap that it can’t get out of. This year alone $4.5 billion is due to foreign lenders and next year $4 billion is owed — bills which the country has not yet figured out a way to pay.

Various interim solutions to the debt crisis have been proposed, such as offering debt-for-equity swaps to countries, such as China, that Sri Lanka owes big and privatizing and outright selling loss-incurring SOEs, which have yet to receive much interest.

The IMF did agree to provide Sri Lanka with a $1.5 billion bailout in the form of a loan in April after the country agreed to a set of criteria to attempt to right the course of its wavering economy. However, as reported by East Asia Forum, Sri Lanka’s Central Bank has stated that it is their intention to secure an additional $5 billion in loans after receiving these funds — and corresponding seal of approval — from the IMF as the debt trap continues getting deeper.

Full Report

Correction 10/3/2016: the $42 million rock was removed from Hambantota not Colombo.  

I’m the author of Ghost Cities of China. I’m currently traveling the New Silk Road doing research for a new book. Follow by RSS.

11 Responses to “Sri Lanka’s Debt Crisis Is So Bad The Government Doesn’t Even Know How Much Money It Owes”

  1. Christie Says:

    Fakes. He is making mone from story telling. Some may be true others total fakes.

    Appears to be anti Chinese and pro Indian. May be on the Indian Empire’s payroll.

  2. Fran Diaz Says:

    It’s all part of the ‘Crash & Sell’ program of the UNP led Yahap.

  3. Nimal Says:

    To is the day of the UK’s budget where the situation in the country with a horrible debt of 1.7 Trillion Pounds. that is £70,000 per every one living in the country.With this kind of debt there will be decades of gloom but the irresponsible opposition wants more gloom with demands for more spending the country do not have. Chancellor’s proposals in the budget is not extensive enough but in the right direction as a damage control measure to keep the country going but sadly he is not popular with his budget.
    This is the fault of all the past governments for being extravagant and giving into people’s wishes as a political correct measure, though they have the best of brains advising them otherwise.
    With respect to Sri Lanka,over decades our politicians perusing their own private agendas were perusing ventures that the country couldn’t afford. It was done so without proper public debate, consultation and foresight for the greater good of the country.
    Just like in UK they are leaving the mounting the debt for future generations and no doubt they need wars to export the arms, selling arms to Middle East to earn some money to reduce the debt.
    It is a small measure to tax the doggy self employed working of home garages operating in vans like the plumbers,etc paying little to the government.
    To Sri Lanka,my suggestion is to increase the cash input to the country by selling off the government own tea estates to companies in UK who have a good established selling and marketing infrastructure with their well respected brands.
    This will bring the cash we need, give an income to many employee where they might set up factories to pack them in SL.
    Disband the useless tea propaganda board.
    Another infrastructure project should be in the energy field and making echo friendly cars,driven by electricity.this is the future.
    We could ask the Germans to set up a manufacturing unit for producing mono crystalline solar panels which could be exported as well as used in the island. Every roof top of the country could be fitted with the solar panels with grid connected invertors.
    Depending on the size of the roof and panels, a house holder could charge up the cars for a fee that could pay for the investment or feed the national grid. Thus the benefits could be many folds to the country.
    Country must come hard on politicians misusing their office for squandering the country’s wealth thus putting the country in to debt, like in Zimbabwe.
    To oversee the politicians we must have an upper house with people of great honest business skills where every pound and cent matters, no nonsense people without stupid frills and that means no politicians. The way forward for progressive countries.
    We must also ban the national ambude that keeps reminding the world that we are decedents of the Dravidian people.

  4. Ananda-USA Says:

    The ABSOLUTE AMOUNT of loans taken is NOT THE CORRECT MEASURE of the SEVERITY of the debt problem.

    The SEVERITY should be assessed in terms of the size of the economy and the ability of the government to device the recurring interest payments and principal repayments.

    Like how homeowners finance house purchases through recurring mortgage payments, the MR/UPFA GOSL had a systematic PLAN to repay the loans taken for INFRASTRUCTURE DEVELOPMENT.

    These loans were for INFRASTRUCTURE INVESTMENTS that would produce an INCOME that was many fold larger than the investments to the government in the future.

    The Yamapalanaya borrowed a VAST AMOUNT OF MONEY compara le to the MR/UPFA GOSL but spent the money on CONSUMPTION including BRIBES & THEFTS they themselves engineered.

    The did not understand the carefully crafted FINANCING PLAN of the MR/UPFA GOSL and we’re FOCUSED on REWARDING themselves and FATTENING their Party Coffers!

    Like a homeowner paying off a large mortgage, a government cannot increase the credit card debt load to the extent the recurring payments OUTSTRIP the income available to make the payments. Each additional loan must be evaluated and planned for to be able to pay it off as the previous investments generate income.

    This is COMMON SENSE, NOT ROCKET SCIENCE; but the JURY RIGGED Yamapalanaya IDIOTS did not have any COMMON SENSE!

    The LACK OF COMMON SENSE is so SEVERE that it ALMOST SEEMS that it is DESIGNED TO BANKRUPT the nation for some ULTERIOR UNPATRIOTIC PURPOSE, such as BLACKMAILING the majority Sinhala Buddhist community into giving up their DOMINANT position and allowing the DISINTEGRATION and PARTITION of their Motherland in favor of SEPARATIST MINORITIES!

    Fran Diaz may be CORRECT when he accuses the Yamapalanaya of a DELIBERATE “CRASH & SELL” strategy.

  5. NeelaMahaYoda Says:


    I think we have got enough economists in Sri Lanka to recommend which way we should navigate our economy for the betterment of average people in Sri Lanka.

    Your two cents worth recommendations are only good for multinational corporation who would like to exploit the under privileged poor folks who are struggling to make ends meet.

    Selling cheap labour in return for a few shillings are the concepts of the past in the colonial era.

    We are not going back to colonial era for sure.

    Requesting a multinational company to open up a manufacturing plant and exploit their labour will never solve our problem in the long run.

    We need a sound economic policy where we could transfer technological knowhow to the local people and get them engaged in high tech manufacturing like what China has done in the last century.

    Some of these should include manufacturing of printed circuit boards, electronic components such as components used in solar panels, programmable controllers, calculators, toys and consumer electronics

    Our people are intelligent people and no one should think about using them as labourers to multinational companies.

    We can start this with the close collaboration of our best neighbour China, start with manufacturing solar panels locally to cut down the cost of fuel based electricity.

  6. Nimal Says:

    I don’t agree with you.
    China got most of the technology from us in the west and they too copied our technology. I know as a fact where they were asked manufacture some of the most state of the art technological parts for the fast developing digital infrastructure in UK.That company is H****.where all the knowhow came from UK.They used the readily available work force to get the panels produced fast to meet the demand.

    They too had the privilege of sending their young to study in the universities in the West.

    They produced the cell phone with the ownership of a foreign firm with the foreign well-known brand which one could buy that product anywhere in the world and it was a cost cutting exercise where there’s plenty of available people.

    China too produced their on cell phone where I sold thousands in Sl in my 3 outlets along with the mobiles that was produced in China for the foreign companies with the well known brands that one may pick up in any shop world wide.

    Sadly the quality of the brand that was produced by them was far below the standards offered by the brands produced in China but owned by the usual foreign companies.

    I doubt that your arguments hold water in this globalized world.Zimbabwae thought like what you wrote and where are they now?

    Selling the country and talk of colonisation is old hat.

  7. Dilrook Says:

    Thank you for this report. The $10 billion I quoted elsewhere as direct borrowings by state entities is mentioned here.

    [Quote] In addition to racking up large amounts of government debt via the usual channels, it’s now becoming evident that the previous government also utilized state-owned enterprises to take out additional loans on its behalf. While the full extent of this extracurricular lending seems unknown, current estimates peg it at a minimum of $9.5 billion — which is all off the books of the finance ministry. [Unquote]

  8. Dilrook Says:

    Agree with NeelaMahaYoda on the direction we should take. However, the debt crisis will not give us many options.

    China is in the middle income trap. China now finds it is losing the cost advantage as it has developed rapidly and salaries have grown. A few of those industries (not all) can be based in Sri Lanka as the Chinese government is now turning these businessmen (factory owners) into investors (invest elsewhere).

    Some compromises have to be made.

  9. NeelaMahaYoda Says:

    Something Nimal does not appreciate is the manufacturing capability of China. Almost 90% of the electronic goods used in UK (Television, computers, CCTV cameras both digital and analogue) are produced in China exclusively with Chinese components under Japanese trade names.

    Those factories are not mere assembly plants; they use Chinese engineers for product improvements, development and enhancement etc.

    However, There are 100% Chinese products now available in the market. and are the best in the world.

    Recently I installed four IP CCTV camera system HIVISION system at home which is 100% Chinese and best in the market and most popular in the US, and then my Solar Panels on the roof are Chinse made even though supplied, installed and guaranteed by a well-known UK company.

    My Sony LED HDR 4K Ultra HD television is also made in China. And all HDMI cables are 100% Chinese.

    Yes I agree with Dilrook, China is now saturated with manufacturing and moving into investment utilising massive reserves earned during last 30 years. Chinese have already purchased major chunk of the services industry like railway and power supply in UK and Europe.

  10. Dilrook Says:

    That is true NMY. They are now producing their own products that are world class.

    Now China is also venturing into heavy industries where there is tremendous potential. Ship building railways, power stations and other industries dominated by developed countries are now with China. Even in defence China is a global player today rivaling the best.

    Finance is another booming industry in China. With AIIB and other very large banks, China will make a huge impact around the world. Even UK and developed countries are willing to join it. China is the largest trading partner of more than 140 countries today.

    When Sino-Europe rail links start operational it will be a new world order. Every other country tries to remain relevant to China. Sri Lankan leaders found it the hard way why they should not get into the wrong side of China.

  11. Nimal Says:

    Dilrook and others
    Never hope that the economic emerging powers in the East that include China,Japan and Korea ever be powerful enough.They have to catch up with the western countries to adhere to human rights, and other conventions acceptable to maintain the standards that was won in the past wars.
    I am glad that they are catching up with us here in the West.They put an enormous effort to send people to be educated here and as an fast track by getting people of knowledge to teach and work in places like China. Japan is an exception where the evolved on their own.
    I remember when I travelled from Colombo during school holidays where the most of the vehicles that carried passengers had to break journey at Kadugannawa to top up the heated radiators as those cars got heated up but the not the car model Datsun(blue bird I think).It drove up the hill effortlessly and hardly made a noise.
    During the colonial times my father had British made cars bought by the government electrical dept and they changed that to Czechoslovakian Skoda wch was then the first model to have a streamline model with an efficient engine and then the colonial planters replaced their BSA Bantams with the Chech made Java which was a better motor bikes for going up the mountainous roads of the tea estates.
    So they learned from each other and only us in sL is behind time due to our stagnant culture.
    One could see how the Chinese are imitating the progressive West with the dress code.
    The fool like Weerawansa met the Chinese leaders in China wearing an ancient style Chinese robe while his Chinese counterparts wore the cloths of this day and age and I rest my case.
    All these big economic powers are not yet up to the standards one expect with respect human rights and with respect to sovereignty of others in the area and could be a threat to all of us and it is good to have the mad gun ho yanks having bases close to us.
    One only have to go by their invasions in places like Manchuria, Burma,Thailand to know how brutal they are and given a few decades they may fall in line with us but I fear under Trump we may have those standards eroding that is a cause for concern.
    If those countries are so great why people from our countries are not allowed to settle and while we are still having a chance to settle in the western countries?
    When the North Korean leader put his aging uncle for sleeping at a meeting to be eaten alive by dogs then do we glorify them?

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