Sri Lanka risks a decade-long debt-interest spiral similar to Jamaica’s experience if growth stays sluggish after the current restructuring, a new report by First Capital Research warned on Friday, in one of the most direct analytical comparisons yet drawn between the two debt-distressed island economies.
The report, Jamaica’s Debt Reckoning & Lessons for Sri Lanka, notes that Sri Lanka has met its initial fiscal targets and completed its Domestic Debt Optimisation, but argues that policy continuity is more critical given the heavier external debt burden the country still carries compared with Jamaica’s largely domestic crisis.
Jamaica underwent two domestic debt restructurings between 2010 and 2013. The first attempt, the Jamaica Debt Exchange, failed within three years due to fiscal slippage and the absorption of state-owned enterprise debt. Only the harsher second restructuring, the National Debt Exchange, achieved sustainability — at the cost of what the report calls a “lost decade” of underinvestment as capital expenditure was sacrificed to maintain primary surpluses.
First Capital identifies three potential paths for Sri Lanka. In the optimal scenario, fiscal discipline holds and private credit growth supports an economic expansion that can absorb the external debt repayments resuming from 2028. A stagnant-growth path sees discipline intact but growth subdued, delaying a return to international bond markets. The third — fiscal derailment after the IMF programme expires — would trigger governance-linked bond penalties and a possible second restructuring.
The report flags the ongoing transition to a Treasury Single Account under the new Public Financial Management Act as a structural risk: moving government cash buffers from state-owned banks to the Central Bank could “inadvertently stifle credit” by draining a key funding source for the banking system.
The analysis lands as the country still awaits a pending IMF Executive Board decision on the next disbursement tranche, and as the rupee has slid more than 5% this year — adding fresh pressure on the post-restructuring recovery path.
