Colombo, July 29, 2025
In a significant development for Sri Lanka’s financial landscape, official data reveals that resident investors in the country have begun purchasing restructured International Sovereign Bonds (ISBs) from foreign holders during the first quarter of 2025. This marks a notable shift in bond ownership following the government’s major debt restructuring program concluded in December 2024. Under that agreement, approximately USD 12.55 billion in defaulted sovereign bonds were exchanged, resulting in a reduced total of USD 10.585 billion in newly issued macro-linked and governance-linked instruments.
The increased involvement of local investors indicates growing confidence in the country’s debt restructuring roadmap and fiscal outlook. It also reduces the country’s exposure to volatile foreign capital, while enhancing domestic liquidity in government securities markets. Analysts suggest that this internalization of bond ownership could positively influence bond yields and secondary market stability, particularly as local institutions are more likely to hold the bonds for the long term.
This trend aligns with broader goals under Sri Lanka’s ongoing IMF-supported recovery program, which emphasizes sustainable debt management and financial sector resilience. As local investors take on a greater share of sovereign liabilities, future participation by foreign investors is expected to depend heavily on Sri Lanka’s sovereign credit risk trajectory, macroeconomic stability, and commitment to structural reforms. Meanwhile, residents who now hold these instruments may benefit from attractive, risk-adjusted returns offered under the newly restructured bond terms.
Ultimately, this development represents more than just a technical shift in ownership. It reflects a broader vote of confidence by domestic stakeholders in the country’s recovery efforts and paves the way for a more resilient and locally anchored sovereign debt market.
