Sri Lanka’s debt restructuring plan could be completed by Jun
The plan to restructure Sri Lanka’s debt could be completed by June, two people aware of the matter said, as the island-nation prepared to reach an agreement with its creditorsinthecomingmonths.
“We expect that the agreements will be finalized around June, which will help settle the debtrestructuringprocesswith Sri Lanka,” said one of the officials mentioned above, requesting anonymity.
In May 2022, India’s southern neighbour defaulted on its overseas debt after its worst financial crisis since independence in 1948 emptied out foreign exchange reserves.
In March 2023, Sri Lanka secured a four-year $2.9 billion bailout package from the International Monetary Fund (IMF), subject to the country ensuring debt sustainability in line with agreed targets.
Sri Lanka has also negotiated a preliminary deal to restructure about $10 billion of debt owed to bilateral creditors led by India, Japan and France.
Last October, Sri Lanka and China reached a deal to restructure $4.2 billion in debt. Last November, it reached an agreement with lenders, including China, to restructure nearly $5.9 billion in loans in order to continue accessing a $3 billion IMF bailout package.
The deal included a mix of extending the tenure and reducing interest on bilateral loans granted to the cashstrapped nation. India, Japan and France co-chair the island nation's official creditor committee. However, China, despite being Sri Lanka’s largest bilateral creditor, is an observer on the committee.
Sri Lanka’s total external debt was estimated at $36.6 billion, which includes $10.94 billion of bilateral debt, at the end of September 2023, according to Reuters.
“There is a willingness to resolve this at the earliest among the creditors and the Sri Lankan government,” said the second person mentioned above. “They will need to secure agreements with creditors in the next few months to get past the second review of the IMF programme, which is due in the first half of calendar year 2024,” the person added.
Spokespersons of India’s finance and foreign ministries didn’t respond to emailed queries.
Sri Lanka’s ministry of finance also didn’t respond to emailed queries.
As things stand, Sri Lanka’s largest lender China has been reluctant to take a haircut on its loans, instead offering to extend the term of its loans and adjust interest rates.