Sri Lanka’s Sovereign Debt Restructuring: Lessons from Complex Processes
IMF Working Papers, September 23, 2025
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- Sri Lanka’s Sovereign Debt Restructuring: Lessons from Complex Processes
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Bibliographic details
- Authors: Peter Breuer, Sandesh Dhungana, Mike Li
- Published: September 23, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229024211.001
Overview and context
- Publication date: September 23, 2025
- By: Peter Breuer, Sandesh Dhungana, Mike Li
- Series: Working Paper No. 2025/175; Issue: 175; Volume: 2025; Pages: 46
- DOI: https://doi.org/10.5089/9798229024211.001
- Stock No: WPIEA2025175
- ISBN: 9798229024211
- ISSN: 1018-5941
- Citation provided in source: Peter Breuer, Sandesh Dhungana, and Mike Li. "Sri Lanka’s Sovereign Debt Restructuring: Lessons from Complex Processes", IMF Working Papers 2025, 175 (2025), accessed 8/28/2026, https://doi.org/10.5089/9798229024211.001
Key findings and analysis
- Restructuring complexity
- Sri Lanka’s debt restructuring is distinguished by its complexity due to a particularly diverse creditor landscape and novel instruments issued in the restructuring.
- The majority of official debt was held by non-traditional creditors outside of the Paris Club.
- Domestic borrowing played an important role in Sri Lanka’s overall debt.
- Eligibility and coordination constraints
- Sri Lanka was not eligible for the G20 Common Framework for Debt Treatments and therefore had to navigate challenges of a diverse creditor landscape requiring complex coordination across many stakeholders.
- Creditor preferences and instruments
- Commercial creditors were particularly interested in new and complex instruments that would:
- share up- and downsides to the macroeconomic framework, and
- offer additional debt relief for implementing governance reforms.
- IMF analytical approach
- For the first time, the IMF applied fully the newly developed Sovereign Risk and Debt Sustainability Framework to assess debt sustainability.
- Macroeconomic backdrop
- The restructuring took place against the background of a very deep fiscal and balance of payments crisis that required sweeping policy solutions.
- The crisis and restructuring occurred in the context of a complex IMF-supported reform program.
- Scope of the paper
- Reviews root causes of Sri Lanka’s debt problem, deliberation of its solution, and the designs, negotiations, and outcomes of the restructuring processes.
Policy implications and lessons
- Restructuring strategies and design
- Lessons from Sri Lanka’s experience can inform restructuring strategies and instrument design when confronted with:
- a highly diverse creditor base,
- significant domestic debt exposure, and
- creditor preferences for state-contingent and governance-linked instruments.
- Role of the IMF
- The IMF’s role in facilitating debt-creditor engagement is highlighted as a key element that can inform future restructurings.
- Analytical tools
- Full application of the Sovereign Risk and Debt Sustainability Framework illustrates the value of advanced analytical tools in assessing debt sustainability under complex creditor structures and macroeconomic stress.
Subjects and keywords (from source)
- Subjects: Asset and liability management, Debt Relief, Debt service, Debt sustainability, External debt, Public debt
- Keywords: BOP financing gap, Debt relief, Debt service, Debt sustainability, debt-creditor engagement, Global, IMF's role, restructuring strategy, Sovereign Debt, Sovereign Debt Restructurings, Sovereign Defaults, Sri Lanka, Sri Lanka development bond, Sri Lanka's Debt problem, Sri Lanka's Debt restructuring
Source: IMF Working Paper "Sri Lanka’s Sovereign Debt Restructuring: Lessons from Complex Processes" (Working Paper No. 2025/175, September 23, 2025).
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- Working Paper