By Sri Lanka’s central government debt to gross domestic product was largely unchanged at 105.49 percent by December 2023, compared to 105.45 percent in September, but down from end 2022, an analysis of official data shows. How ever it is still high and needs to approached with caution
Sri Lanka’s debt has been driven by factors such as budget deficits, borrowing for infrastructure projects, and external financing needs.
Stabilization of Debt Levels: The fact that the central government debt remained relatively stable suggests that the government might have taken measures to stabilize its debt levels. This could involve efforts to control spending, increase revenue, or refinance existing debt at favorable terms. Stabilizing debt levels is crucial for maintaining investor confidence and avoiding further deterioration in credit ratings.
Potential Impact on Fiscal Sustainability: While stable debt levels may be a positive sign, a debt-to-GDP ratio of over 100% remains high and could signal fiscal sustainability challenges. High debt levels can constrain the government’s ability to invest in critical areas such as infrastructure, education, and healthcare. Additionally, servicing high levels of debt can lead to a significant portion of government revenue being allocated to debt payments, which may limit resources available for other priorities.
Economic Growth and Investment Climate: High government debt levels can also impact the overall investment climate and economic growth prospects. Investors may become cautious about investing in a country with high debt levels due to concerns about fiscal stability and potential future tax increases. This could lead to reduced foreign direct investment and slower economic growth.
Interest Rates and Borrowing Costs: The stability of government debt levels may influence interest rates and borrowing costs for the government. If investors perceive the government’s debt as manageable and sustainable, they may be more willing to lend at favorable rates. Conversely, if debt levels are seen as unsustainable, lenders may demand higher interest rates to compensate for the perceived risk.
