An Overview of the External Debt Situation in Sri Lanka

Outstanding external debt of Sri Lanka has mounted to a staggering level of US$ 10, 000 millions in 2003. Using data from the last five decades, this paper suggests that the capacity to service external debt is becoming a difficult task in the face of deteriorating terms of trade, mounting current account deficit, depreciating local currency value, heavy dependency on imports and tightening borrowing conditions. We find that Sri Lanka should not be too complacent about its external debt situation although it has received much needed foreign debt assistance in the form of debt write offs and debt moratoriums from its creditors after the disastrous Boxing Day tsunami.