Sri Lanka’s external debt restructure becomes a gigantic task
Sri Lanka’s external debt restructure has become a gigantic task and a complex issue as the Government has to get creditors consent for a repayment plan amidst severe economic crisis and preemptive debt default, several economic experts warned.
Under this set up the International Monetary Fund (IMF) has made debt restructure a prerequisite for the country to seek the approval of the IMF executive board to obtain the Extended Fund Facility (EFF) of US$ 2.9 billion, Peradeniya University economics Prof O.G Dayaratne Banda said.
He added that some of the details in economic reform programmes (a realistic macro-economic and fiscal framework) and repayment plan cannot be revealed as it might affect the negotiations with creditors that are still to be commenced under a post default situation.
Basically the economic reform programme will be devised by the Sri Lanka side with the consent of IMF staff mission aiming at addressing the balance of payment and exchange rate stabilisation, he disclosed.
At this juncture it is not possible to divulge market sensitive information such as debt restructuring parameters, he claimed.
Based on recent developments the IMF staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision, IMF sources revealed.
But due to the present state of preemptive debt default, the government authorities have to submit a plan on debt sustainability to the IMF executive board separately after reaching consensus with creditors on debt restructure.
According to Finance Ministry statistics endorsed by the IMF , the country’s bilateral debt stock as at end 2021 spearheaded by loans taken from China , India and Japan was $ 9.6 billion while the total external debt excluding commercial loans and additional payments amounting to around $ 22 billion.
However several economic experts said China, India, multilaterals and global asset managers should agree on debt restructuring with sizable cuts on capital or interest or both of their borrowings.
Under restructuring, both the borrower and the lender will agree to a new repayment plan with a waiver of the interest or some part of the principal or a combination of both.
Normally according to international stipulation, this maximum hair cut would be around 50 per cent and foreign creditors will have to give their consent to write off 50 per cent of total external debt of $22 billion.
Central Bank Governor Nandalal Weerasinghe has previously stated Sri Lanka can reach debt sustainability without re-structuring domestic debt.
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