Sri Lanka’s continued reliance on the IMF-led debt restructuring framework may offer short-term stability, but critics warn it also carries serious long-term risks particularly if the country deviates from promised reforms or if the programme itself proves too rigid to absorb new shocks.
The ongoing restructuring rests on strict targets set by the IMF’s Debt Sustainability Analysis, which aims to restore market confidence and prevent a repeat of the 2022 default. Yet even the IMF has acknowledged that Sri Lanka’s recovery path is “knife-edged,” with a significant probability of renewed debt distress if growth falters or external shocks intensify.
Recent cyclone damage has exposed these vulnerabilities. Reconstruction is expected to cost between US$6–7 billion, far exceeding available foreign exchange reserves. At the same time, external debt servicing continues to absorb a large share of government revenue, leaving little room for emergency spending without breaching IMF targets.
Supporters of the programme argue that deviating from IMF conditions would jeopardise access to concessional financing and scare off investors. Any unilateral suspension of debt repayments, they warn, could undermine credibility and delay Sri Lanka’s return to international capital markets.
However, critics counter that rigid compliance carries its own dangers. Continuing repayments while borrowing more for recovery simply shifts the burden into the future, increasing the risk of another restructuring. Moreover, heavy dependence on external discipline limits the government’s ability to respond democratically to voter demands for social protection, climate resilience, and inclusive growth.
There is also the question of fairness. Private creditors, particularly holders of international sovereign bonds, benefited from high interest rates during boom years. If Sri Lanka is forced to maintain harsh fiscal adjustments to satisfy these creditors, public trust in both domestic institutions and the international financial system may erode further.
Deviating from the IMF programme is not without cost, but neither is blind adherence. Failure to adapt targets to new realities such as climate disasters or global downturns could lock Sri Lanka into a cycle of low growth, social strain, and repeated debt renegotiations.
The debate ultimately centres on sovereignty and risk-sharing. A more flexible approach, critics argue, would involve deeper debt relief, temporary suspension of repayments during crises, and greater recognition of climate-related losses. Without such adjustments, Sri Lanka may technically remain “on programme” while remaining economically fragile.
As restructuring talks continue, policymakers face a stark choice: prioritise credibility with creditors at all costs, or recalibrate the programme to ensure long-term sustainability and social stability before another crisis forces the issue.
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