SJB MP Dr. Harsha de Silva has rejected competing narratives about Sri Lanka's capacity to meet foreign debt obligations after 2028, arguing that neither pessimistic nor optimistic assessments can be reliably made based on current metrics.
Dr. Harsha de Silva, an SJB Member of Parliament, has criticized both the government's reassurances and opposition warnings regarding Sri Lanka's ability to repay foreign debt from 2028 onwards, stating that blanket assertions on either side lack adequate analytical foundation.
De Silva contended that gross foreign reserves alone are insufficient indicators for assessing debt repayment capacity. Instead, he pointed to the International Monetary Fund's Assessing Reserve Adequacy (ARA) metric as a more appropriate measurement tool. This metric incorporates multiple variables including external debt levels, financial conditions, and export performance to determine whether reserves can adequately protect a country against external financial shocks.
According to de Silva, a reserve adequacy level of approximately 100% is typically considered healthy for sustaining external obligations. He noted that Sri Lanka's current gross official reserves stand at roughly US$6.5 billion, while projections suggest approximately US$12 billion would be necessary to achieve the target adequacy level. De Silva expressed skepticism about the country's capacity to accumulate the required reserves within the next year, raising questions about whether Sri Lanka can reach a comfortable ARA position by the specified timeframe.
Crucially, de Silva clarified that falling short of the 100% ARA target would not necessarily render the country unable to service its debt obligations. Rather, actual repayment capacity would depend on how reserve adequacy levels interact with the country's broader resilience to external economic pressures. De Silva also highlighted that headline reserve figures include foreign currency liabilities and currency swap arrangements, factors that must be carefully considered when evaluating Sri Lanka's true external financial buffer.
