Central Bank Dollars Possible for Debt if IMF Loan Delayed

Sri Lanka will meet its debt repayment obligations using loans from the Asian Development Bank (ADB) and funding under the Rapid Financing Instrument until early 2026, but may turn to the central bank for foreign exchange if an expected IMF tranche is delayed, a senior Treasury official said.

Additional Director General of Treasury Operations Damitha Rathnayake told Parliament’s Committee on Public Finance that the government had planned to use a US$350 million tranche from the International Monetary Fund to service debt obligations. The IMF’s fifth programme review was originally expected to be completed in December.

Responding to questions from opposition MP Ravi Karunanayake, Rathnayake said Sri Lanka had already received US$270 million from the ADB, with a further US$100 million expected before December 31.

“With these funds, we can manage debt repayments in December and the first two to three months of next year,” she said. “If the IMF tranche is delayed beyond that, we will purchase dollars from the central bank.”

Purchasing foreign exchange from the central bank would reduce the government’s net foreign loan position, officials noted.

However, analysts have raised concerns over the central bank’s capacity to supply dollars, citing weaker foreign reserve accumulation in 2025 compared to 2023 and 2024. They attributed this to limited deflationary policy measures under the current IMF framework and a controversial interest rate cut in May.

Critics also pointed to structural changes under the new Central Bank Act, which removed provisions allowing the use of foreign reserves without affecting the monetary base. As a result, any sale of dollars to the Treasury could tighten liquidity in the banking system, potentially creating foreign exchange pressures if not carefully managed.

Analysts have urged the Treasury to build its own external reserves through mechanisms such as sinking funds or sovereign wealth funds, warning against reliance on borrowed dollars to meet debt repayments. They argue that repaying debt using loan proceeds risks repeating past policy mistakes and limits the country’s ability to reduce its overall foreign debt burden.