Sri Lanka to strike debt deal with foreign creditors within 2 months
By: Staff Writer
January 11, Colombo (LNW): A group of Sri Lanka’s creditor nations and Colombo reached an agreement in principle on debt restructuring for the South Asian nation, Japanese top financial diplomat Masato Kanda said on Wednesday.
Japan co-chairs this group, together with France and India, which is comprised of 14 nations. China is Sri Lanka’s largest bilateral creditor and has not joined this group as a formal member.
Sri Lanka’s finance ministry said the agreement in principle covered approximately $5.9 billion of outstanding public debt and consisted of a mix of long-term maturity extension and reduction in interest rates.
Mired in its worst financial crisis in decades, Sri Lanka has been trying to reach restructuring deals with creditors since last year.
The governor of Central Bank of Sri Lanka (CBSL) says ‘good faith negotiations’ are in progress with commercial creditors to reach an in-principle agreement as soon as possible.
Addressing a special media briefing at the CBSL premises this morning (Jan.10), Nandalal Weerasinghe said the agreement is expected to reach within the next two months.
Sri Lanka reached in-principle agreements with China’s Export-Import (Exim) Bank and the Official Creditor Committee (OCC) in late 2023 on the financial terms of debt treatment.
The OCC was formally formed on May 09 with 17 countries to respond to the Sri Lankan authorities’ request for debt treatment.
It is co-chaired by India, Japan and France (as the chair of the Paris Club). It was established following the launch of a common platform in April 2023 for talks among bilateral creditors to coordinate restructuring of Sri Lanka’s debt.
Agreement with the Chinese Exim Bank was reached in October 2023, covering approximately USD 4.2 billion of outstanding debt. It was followed by the debt deal struck with the OCC which covers USD 5.9 billion of outstanding debt.
The International Monetary Fund (IMF) later said the two agreements are consistent with the 48-month Extended Fund Facility (EFF) arrangement provided to Sri Lanka.
The global lender in March 2023 had approved a USD 2.9 billion bailout package for the island nation to ride out its adverse economic situation.
IMF’s Executive Board completed its first review of the EFF program for Sri Lanka, paving the way for the disbursement of the much-anticipated second tranche of the loan which amounted to USD 337 million. This brought the total IMF financial support disbursed thus far to USD 670 million.
The in-principle deals with the Chinese Exim Bank and the OCC had set the scene for the IMF’s Executive Board to consider clearing the first review.