• Sri Lanka will be in a very tight fiscal situation even after a successful debt restructuring as the country will have to pay about 6-7% of GDP in interest payments till 2028, a former IMF official said.
• Reserves should not be used to finance external debt and the Government should push for more and more exports so that there is enough foreign exchange in the market for the Government to purchase to finance external debt.

Former IMF official Dr. Sharmini Coorey emphasized that despite a successful debt restructuring, Sri Lanka faces a challenging fiscal landscape, with projected interest payments of 6-7% of GDP until 2028, leading to a debt-to-GDP ratio of 95% by that year. To alleviate this burden, she stressed the urgency of increasing the tax revenue to GDP ratio from the current 10% to around 14%, highlighting the necessity for normal functioning expenditures beyond interest payments. Coorey emphasized that generating large fiscal surpluses, as required by the IMF deal, hinges on robust tax revenue collection, which necessitates sustained economic growth of 6%. She underscored the imperative of not relying on reserves to service external debt, advocating instead for bolstering exports to ensure a steady influx of foreign exchange. Coorey also clarified that it is not the role of the Central Bank to shoulder government debt. These insights underscore the critical need for proactive fiscal policies and economic strategies to navigate Sri Lanka's fiscal challenges effectively.

Tight fiscal expected even after successful debt restructuring | The Morning