There is a number that dominates almost every conversation about a country’s fiscal health. It is the debt-to-GDP ratio: total public debt expressed as a share of the economy. Governments cite it, international institutions monitor it, and commentators reach for it whenever a country’s finances come under scrutiny. The problem is that it often tells only part of the story, and sometimes a misleading one.
Japan carries a debt-to-GDP ratio well above 200%. The United States sits above 120%. Neither has defaulted. Both borrow freely on global markets. Sri Lanka, by contrast, defaulted in April 2022 at a ratio that many emerging economies routinely exceed without crisis. The number, clearly, does not speak for itself.
What the ratio misses is context: the currency in which debt is denominated, who holds it, how soon it falls due, and whether the country earns enough foreign exchange to meet its obligations. Japan borrows in yen, from its own citizens and institutions, within a framework of full monetary sovereignty. Sri Lanka’s situation was fundamentally different. From around 2007 onwards, the government shifted away from traditional concessional loans and began borrowing heavily through international sovereign bonds, dollar-denominated instruments sold on commercial terms to global investors. These bonds carried interest rates of between 5.875 and 7.875% and clustered maturities of five to ten years. They were expensive to service and hard to refinance when confidence faltered.
When the rupee collapsed and foreign reserves ran dry, the cost of servicing that debt became unmanageable, regardless of what the headline ratio had suggested. By end-March 2022, Sri Lanka faced external debt service payments of $6 billion for the remainder of the year against usable foreign reserves of just $1.9 billion. At that point, the ratio was irrelevant. What mattered was whether the cash was there, and it was not.
State owned enterprises
There is also the question of what gets counted at all. Research into Sri Lanka’s debt practices found that state-owned enterprise liabilities, estimated at around 15.8% of GDP in 2020, were largely absent from official headline figures. Pension obligations, contingent guarantees, and arrears accumulated by state utilities similarly sat outside the numbers that policymakers and the public were shown. One practitioner described arriving at a foreign exchange liability figure of $69 billion against an officially reported $51 billion, a gap created in part by valuing foreign-currency debt at an administratively managed exchange rate rather than the actual market rate.
Meanwhile, approximately 70% of government revenues were being consumed by interest payments alone. That figure rarely featured in public debate, because it did not appear in the debt-to-GDP ratio. A country can look fiscally acceptable on paper while spending nearly all of its income just to keep up with interest bills, leaving almost nothing for hospitals, schools, or infrastructure.
The lesson from Sri Lanka is not simply that it borrowed too much. It is that the way debt was measured and communicated obscured the depth of the problem until it was too late to address it gradually. The crisis itself became the moment when accurate figures finally surfaced, because creditors and restructuring advisers needed them. As one practitioner involved in the restructuring process noted, much of the detailed debt information only became available once the country was already in default. That is far too late.
Consolidation
Sri Lanka has since introduced a centralised Public Debt Management Office and taken steps to bring previously scattered liabilities under a single reporting framework. As of early 2026, the Central Bank has also formally closed its Public Debt Department, eliminating a long-standing conflict of interest in how debt figures were compiled and reported. These are meaningful reforms.
Yet the broader lesson extends well beyond Sri Lanka: a debt ratio is a starting point, not a verdict. Repayment capacity, debt composition, revenue strength, and honest accounting matter at least as much as the headline figure. Numbers protect you only if they are the right numbers-reported honestly. In the end, credibility is not built on a ratio, but on whether that ratio can be trusted. This echoes Christine Lagarde, President of the European Central Bank, who stated: ‘Data must be reliable, timely, and trusted to be useful.’
(The author’s doctoral dissertation focused on public debt governance and fiscal transparency, examining how institutional frameworks, policy discipline, and disclosure practices shape a country’s debt sustainability and economic credibility)