Sri Lanka is examining an ambitious financial strategy that could determine how the country manages billions of dollars in future foreign debt payments. The government’s decision to seek guidance from Lazard Freres on a debt buyback mechanism marks a significant development in its ongoing efforts to rebuild economic confidence.
The proposed strategy focuses on reducing the pressure created by foreign debt obligations through the repurchase of selected debt instruments. While debt restructuring has already become a central part of Sri Lanka’s economic recovery plan, officials are now exploring more advanced financial tools to improve the country’s long-term position.
Public Debt Management Office Director General Udheni Udugahapitiya has identified Lazard’s experience with international debt crises as a key reason for seeking its assistance. She highlighted the firm’s involvement in Zambia’s debt management efforts, where a successful Eurobond buyback helped reduce financial pressure.
Zambia’s experience has attracted attention because it demonstrates how countries facing heavy debt burdens can use market-based solutions. The country purchased USD 1.36 billion worth of Eurobonds, providing a possible example for Sri Lanka as it prepares for future repayment challenges.
The urgency behind Sri Lanka’s search for solutions is linked to its upcoming debt obligations. According to Finance Ministry data, the country faces more than USD 5 billion in international zero-coupon bonds and related securities maturing between 2030 and 2038.
Managing these payments will require careful planning. A poorly structured buyback could create additional financial strain, while a successful arrangement could reduce repayment risks and provide greater flexibility for government finances.
The government’s decision to involve international specialists also reflects limitations in domestic capacity. Complex debt transactions require expertise in global financial markets, negotiations with creditors, and valuation methods. Officials believe external assistance can strengthen Sri Lanka’s ability to secure a favourable outcome.
Meanwhile, recent economic data indicates that Sri Lanka’s fiscal position has improved. Interest payments compared with government revenue have fallen dramatically, from 80% in 2023 to an estimated 44% in 2025. This improvement represents the strongest position seen in six years.
Government revenue has climbed to LKR 5.486 trillion, while interest expenditure as a percentage of GDP has declined to 8%. These gains have created a more stable environment for implementing debt management measures.
Nevertheless, the country’s debt burden remains significant. Public debt is expected to reach LKR 32.195 trillion by the end of 2025, including LKR 11.675 trillion in foreign debt.
The proposed buyback mechanism could become a turning point in Sri Lanka’s economic recovery. However, its success will depend on whether the government can adapt lessons from Zambia while addressing its own unique financial circumstances.
As Sri Lanka enters another critical stage of debt restructuring, the Lazard partnership could determine whether the country merely manages its debt challenges or achieves a more sustainable financial future.