Sri Lanka says debt restructure to be finalized by April

COLOMBO: Sri Lanka’s bankrupt government said Friday that a foreign debt restructure would be finalized by the beginning of April, after signs the economy was emerging from its worst crisis on record. The island nation defaulted on its $46 billion foreign debt in 2022 after a foreign exchange wipeout left it unable to import food, fuel and other essentials. It secured a $2.9 billion International Monetary Fund (IMF) bailout last year which is conditional on a debt deal that satisfies foreign creditors.

“The target for the completion of the debt restructuring would be within the first quarter of the year,” President Ranil Wickremesinghe’s office said. The IMF released a $337-million second tranche of its four-year loan last month after Colombo secured an “in principle” debt agreement with China, Sri Lanka’s biggest bilateral lender.

Neither Colombo nor Beijing have disclosed details of the offer, but the IMF said it was sufficient to ensure the island’s debt sustainability. Official sources in Sri Lanka said the Chinese deal included a mix of extending the tenure and reducing interest on bilateral loans, instead of a haircut on its loans.

Wickremesinghe’s government has this week hosted visiting Japanese finance minister Shunichi Suzuki, representing Sri Lanka’s second-largest bilateral creditor. The president’s office said Suzuki expressed “optimism” about Sri Lanka’s economy and noted its modest 1.6 percent growth in the September quarter, the first expansion since the debt default. There was no immediate comment from the Japanese delegation. Sri Lanka had hoped to secure a debt agreement with bilateral lenders as well as international sovereign bond holders within months of its default.

But the process had been repeatedly delayed, reportedly in part by China’s refusal to consider a haircut on its existing loans, which account for 10 percent of the island’s total foreign debt.

Sri Lanka saw months of civil unrest at the peak of the economic crisis, culminating with the ouster of then-president Gotabaya Rajapaksa when thousands of protesters stormed his home. Wickremesinghe, his successor, has doubled taxes, withdrawn generous energy subsidies and raised prices of essentials to shore up state revenue in line with the IMF bailout deal.