The government will settle loans guaranteed for state-owned enterprises (SOEs) that have defaulted on borrowings from state banks, according to the 2026 Budget presented to Parliament last week.
The budget said Treasury guarantees and letters of comfort had been issued to facilitate borrowing by SOEs, many of which are now unable to repay due to chronic losses and financial distress.
These obligations, valid until December 31, 2026, are to be cleared this year “as an urgent need,” the document stated, without specifying an amount.
Data from the Finance Ministry shows that loans totaling 554 billion rupees from state banks to SOEs have been guaranteed by the Treasury, with the Road Development Authority (RDA), SriLankan Airlines, the Ceylon Petroleum Corporation (CPC), and the Ceylon Electricity Board (CEB) accounting for the largest share.
The Bank of Ceylon holds 259.6 billion rupees in such loans, including 105 billion to the RDA, 59.3 billion to the CPC, and 44.6 billion to SriLankan Airlines.
The National Savings Bank and People’s Bank have 162.9 billion and 131.79 billion rupees in guaranteed loans respectively.
Many of these loans were raised as off-budget, off-balance-sheet liabilities during previous Rajapaksa administrations, allowing the government to understate the true fiscal deficit.
While the RDA continues to receive annual “gap-financing” allocations from the budget, analysts note that the agency generates limited revenue outside expressway tolls, which are committed to servicing separate debt.
The budget did not clarify how the Treasury intends to fund the guarantee settlements, though officials have pointed to a substantial cash buffer held in state banks that may be partially re-invested in government securities, in what some analysts describe as a circular financing mechanism.
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