SriLanka debt restructuring delays amidst legal tangles
Sri Lanka is running out of time in commencing debt restructuring process with the delay in granting government approval to cabinet approved financial and legal advisers Lazard and Clifford Chance for the difficult task of renegotiating its debt of US$51 billion as the Attorney General’s Department is still to clear legal documents pertaining to the appointment, finance ministry sources said.
Representatives of the international financial and legal advisers have left the island after the conclusion of their preliminary observations on how to restructure Sri Lanka’s debt including the $6.4 billion of foreign debt outstanding, of which $ 1 billion International Sovereign bond was due on July15 or 16.
Inter national Monetary Fund (IMF) will have to bailout of debts to the tune of US$ 6.4 billion over the next three years, amidst an economic disaster in the country.
The COVID-19 pandemic caused supply chain disruptions, compounding the economic challenges across the region. The Ukraine-Russia conflict have further worsened the situation, as Western sanctions on Russia have caused devastating economic fallouts.
Cash strapped government must urgently seek funds from multilateral lenders and aim to restructure a debt payment due in July with political stabilityis essential amid the country’s worst economic crisis in decades, finance ministry said.
Sri Lanka’s Balance of Trade (BOT)[b] has been registering a consistent deficit, with an approximately increasing trend in deficits over the years
Between December 2021 and March 2022, Sri Lanka’s trade deficit decreased from US$ (-)1085 to US$ (-)762, denoting a drastic reduction in imports due to FOREX exhaustion and indicating the onset of the crisis situation in the economy
Sri Lanka’s creditors face losing up to half of their investments in the country’s dollar bonds, after the government announced it would restructure $11 billion worth of debt, the first financial shake-up of its kind in its modern history.
Formal debt talks haven’t started but analysts are already crunching the numbers to estimate what kind of losses could be inflicted on bondholders.
Mired in economic crisis, Sri Lanka has halted all external debt payments and is prioritising its remaining hard currency reserves to buy food and fuel