ECONOMYNEXT – Gita Gopinath, First Deputy Managing Director of the International Monetary Fund, spoke at a conference in Sri Lanka’s capital Colombo, on the initial recovery from then nation’s first first external default.
The full text of the prepared speech is reproduced below:
This Time Must be Different: Lessons from Sri Lanka’s Recovery and Debt Restructuring
Shangri-La Hotel Colombo, June 16, 2025
Excellencies, distinguished guests, colleagues, and friends,
It is a great honor to join you today for this important conference which takes place at a critical juncture in Sri Lanka’s economic journey.
This conference comes not only at the mid-point of Sri Lanka’s IMF-supported economic reform program, but also at a moment when the global economy is facing powerful crosscurrents—slowing growth, rising tariffs, and a rapidly changing global economic order alongside profound uncertainty. Countries are being tested by shocks that are more frequent and more complex. The challenge for all of us is to build resilience in a world that demands it.
Achievements Resulting from Reforms Supported by the IMF-EFF Program
In this light, Sri Lanka’s experience stands out—both for the severity of the crisis the country experienced three years ago, and the remarkable progress that has been achieved in a very short time. The crisis was precipitated by years of declining tax revenues, depleted foreign exchange reserves and an explosive and unsustainable increase in public debt as growth collapsed. There were long lines for fuel, severe shortages of basic goods, record inflation, and widespread power outages. For many households, daily life became an exercise in hardship.
Today, thanks to bold reforms and the commitment of the Sri Lankan people, substantial progress has been made to restore macroeconomic stability and reduce hardships faced by people. Fuel, cooking gas, and medicines are available again. Inflation has been brought under control and economic growth has returned—expanding by 5 percent in 2024. On the fiscal front, the government has achieved an extraordinary adjustment and tax revenues have increased by more than two-thirds as a share of GDP.
The government has also put a strong emphasis on improving governance, which is fundamental for establishing trust with citizens and ensuring sustained growth. Important milestones have been achieved including central bank independence,
improving public financial management, and strengthening the legal framework for anti-corruption. Our analysis shows that comprehensive fiscal governance and accountability reforms in Sri Lanka can boost GDP by more than 7 percent and reduce the debt-to-GDP ratio by more than 6 percentage points over 10 years.
Sri Lanka also took the difficult but necessary decision to default on its public debt and pursue a sovereign debt restructuring. These decisive actions on debt have helped ease the burden on the country. External creditors have forgiven $3 billion in debt and restructured another $25 billion, extending repayment over two decades at lower interest rates. Sri Lanka’s bonds are once again included in global indices, and its credit rating has improved.
The experience of Sri Lanka holds important lessons for the world, and I would like to speak to the lessons from its debt restructuring.
I. The Nexus between Economic Reforms and Debt Restructuring
Sri Lanka’s debt restructuring had to deal with several challenges:
1. Calibrating the restructuring targets to deliver sufficient debt relief.
This was a complex endeavor. As with all restructurings, debt sustainability needs to be restored through a combination of debt relief and policy adjustments, such as fiscal effort.
The targets must be carefully calibrated to consider country specific circumstances.
In Sri Lanka’s case, the targets considered the severity of the crisis while also
recognizing the country’s high levels of private savings, tourism receipts and
remittances. Through this restructuring, over the next decade, external debt service
as a share of GDP is reduced by a half, and external and total debt stock will fall by
27 and 34 percentage points of GDP respectively.
2. Facilitating collaboration in a complex external creditor landscape.
A full range of official creditors needed to find ways to coordinate, and not all creditors had the internal processes in place to deliver swiftly. The Official Creditor Committee chaired by France, India and Japan shepherded many creditors together and China informally coordinated with this group.
Still there were challenges in the sharing of information across creditor groups and concerns about comparability of treatment across officialbilateral creditors. To help move the process along, the IMF staff were very active in
providing information and using IMF “good offices” on an ongoing basis to support
coordination.
3. Containing financial and social stability risks from the restructuring.
A large share of Sri Lanka’s debt is domestic. The authorities recognized that external debt relief by itself would be unlikely to restore debt sustainability and domestic debt needed to be part of the restructuring effort.
This had to be tackled carefully because of the significant exposure of Sri Lanka’s domestic financial sector, the central bank and the public pensions vehicle to government debt. To preserve financial and social stability, the authorities avoided nominal debt reductions and focused on lowering interest rates and lengthening maturities.
The Sri Lankan debt restructuring experience provides several lessons that will help make the process simpler for other countries that need restructuring in the future. Sri Lanka’s experience better illuminated the trade-offs in setting debt targets and directly led to the development of improved methodologies for evaluating state contingent features in debt contracts. It helped creditors learn how to improve coordination and gave them new instrument designs to contemplate. Together with other recent restructuring cases, it helped motivate important reforms to IMF’s debt policies.
Over time, there have been other important improvements in the sovereign debt architecture. The IMF, Bank and G20 Presidency convened the Global Sovereign Debt Roundtable to help serve as a forum for creditor dialogue and generate consensus on difficult issues that arise in restructurings. An important recent output of these efforts is a restructuring playbook, published at the time of our Spring Meetings, which lays out the typical steps in a restructuring and an indicative timeline. It is important to recognize that, thanks to these initiatives, experiences, and the G20 Common Framework, the restructuring process has become faster. In the recent case of Ghana’s, it took five months to get from an IMF staff level agreement to delivering the financing assurances required for program approval—roughly half the time it took for Chad in 2021 and Zambia in 2022. Looking ahead, let me assure you that our work on improving the timeliness and effectiveness of the global debt architecture will continue.
For Sri Lanka, the experience with the debt restructuring drives home the importance of managing the economy such that a similar situation will never arise again.
II. Important to Stay the Course
Let us be clear: none of the achievements thus far would have been possible without the courage and sacrifice of the Sri Lankan people. The crisis was costly and painful, particularly for the poor. The reforms undertaken to address the root causes of the crisis—adjustments in taxation, the removal of unsustainable subsidies, efforts to restore cost-reflective energy pricing—have asked a great deal from ordinary citizens. These are
difficult measures. They test the social fabric. And yet, they are the foundation of a more resilient future.
That is why we must now turn our focus from crisis response to sustainable recovery. There is a lot that is still needed. Poverty rates at 24.5 percent in 2024, according to the latest World Bank estimates, are too high and need to be brought down quickly. This requires continued macroeconomic stability and successful implementation of structural reforms. Tackling corruption will require major reforms. Implementing the government’s action plan on governance reforms is critical. While much has been done to reduce external debt, domestic debt is still high and steadfast implementation of sound fiscal policy is critical to continue bringing it down.
None of this will be easy. In addition to the domestic challenges, the global environment is difficult with tariffs, geopolitical conflict and economic fragmentation posing major risks for small open economies like Sri Lanka’s.
This is why there is no room for policy errors. As the IMF Managing Director noted during our Spring Meetings in April: the choice facing countries today is between reform and regret. Between building buffers—or risking future crises.
Sri Lanka’s reform program has delivered strongly. But history reminds us of the risks. Of the 16 IMF programs Sri Lanka has engaged in over the years, about half ended prematurely. Often, reform fatigue sets in. Hard-earned gains were reversed. Growth faltered. The country cannot afford to repeat that cycle.
Let me therefore underscore how essential it is to sustain the reform momentum, and in a manner that is inclusive and accountable. Public dialogue matters. Transparency matters. Engaging civil society and listening to diverse voices—not just in Colombo, but across the island—will help ensure that policies are responsive and responsible.
This conference is exactly the kind of platform that can foster such engagement. It is a space to reflect, to challenge assumptions, and to build consensus. The IMF will remain a steadfast partner as Sri Lanka pursues stable and inclusive growth that improves the lives of all citizens and future generations.
This time must be different! As President Dissanayake has said, let us ensure this is the last IMF program Sri Lanka will need.
We agree, and believe this is possible if Sri Lanka stays the course.
Thank you.
