Debt restructuring talks with bilateral creditors get underway
Sri Lankan fiscal and monetary authorities have begun discussions with bilateral creditors on debt restructuring of US$ 7.1 billion out of the total $25.9 billion owed to external creditors.
Sri Lanka is now holding debt restructuring talks with Paris Club members together with India, while discussing with China separately.
Three baseline restructuring scenarios with six-year maturity extension for all of them and nominal haircuts ranging from 15 per cent to 30 per cent, with higher coupons corresponding to lower haircuts have already been proposed, reliable official sources said.
Each of the three baseline scenarios also implies roughly equal net present value relief of 23-28 per cent at the IMF's preferred 5 per cent discount rate.
Sri Lanka is indebted $7.1 billion to bilateral creditors, according to official government data, with $3 billion owed to China, $2.4 billion to the Paris Club and $1.6 billion to India.
The government will present a comprehensive plan for treating foreign as well as local debt to creditors next month (middle of May) postponing the earlier date of Tuesday (April 25), a senior Finance Ministry an official involved in IMF negotiations said.
The delay in the releasing of the plan shows the difficulty the Sri Lanka authorities face in balancing the demands of its bondholders, he said adding that this will be raising the risks associated with the IMF’s $3 billion Extended Fund Facility (EFF) programme.
Sri Lanka's total debt is $83.6 billion. Foreign debt amounts to $41.6 billion while domestic debt amounts to $42 billion.
It is expected that the restructuring negotiations would be delayed and extend till December against the government deadline of completing it by September, he said.
Foreign creditors now demand to include domestic debt in the restructuring, which some Sri Lankan banks oppose but the government seeks to avoid talks that include pre-conditions.
According to several financial analysts and former top officials of the Central Bank, local banks and licensed financial institutions will experience significant capital and forex shortfall as a result of sovereign debt restructuring.
The superannuation funds such as the EPF, ETF, NSB and Insurance Corporation will also be heavily exposed by this procedure, they added. However, the government will have to fulfill several commitments under the IMF reforms to extend the currently improving economic performance and secure long-term recovery.
It has to establish an online transparency platform as soon as possible to publish, on a semi-annual basis, with information related to all significant public procurement contracts, a list of all firms receiving tax exemptions through the Board of Investment, and a list of individuals and firms receiving tax exemptions on luxury vehicle imports.
Other commitments are parliamentary approval of welfare benefit payment scheme (Enhanced Social Safety Nets) by end May, Cabinet approval of a comprehensive strategy to restructure the balance sheets of key SOEs, parliamentary approval of new anti-corruption legislation and the parliamentary approval of the new Central Banking Act by end June.
According to several financial analysts and former top officials of the Central Bank, local banks and licensed financial institutions will experience significant capital and forex shortfall as a result of sovereign debt restructuring.