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Bondholder group wants Lanka to ‘reorganise’ local debt
Institutions that hold outstanding international bonds issued by Sri Lanka have set a tough condition that the Government’s domestic debt be “reorganised’’.
They said that an agreement will depend on this condition and two others being satisfied.
The condition on domestic debt “reorganisation’’ was outlined in a statement issued on Friday in New York to the IMF through the bondholder group’s lawyers White & Case LLP.
Central Bank Governor Nandalal Weerasinghe had said in August emphatically and confidently that domestic debt was not negotiable, but his position has since changed to say that it will be discussed only after the IMF approves financial support.
There are more than 30 institutional holders of the 11 outstanding series of international bonds by Sri Lanka. The ad hoc bondholder group, including BlackRock and its subsidiaries, Amundi Asset Management, Morgan Stanley Investment Management, and T. Rowe Price Associates, represents the interests of global investors in the debt restructuring process.
The aggregate outstanding bonds of US$ 12.6 billion, make up about 50% of Sri Lanka’s total foreign-currency-denominated state debt. The group’s statement to IMF Managing Director Kristalina Georgieva laid out three conditions.
The first condition says: “The central government’s domestic debt – defined as debt governed by local law – is reorganised in a manner that both ensures debt sustainability and safeguards financial stability.
“Assuming that annual gross financing needs should not exceed 13% of GDP in the period between 2027 and 2032, whilst allowing for central government annual foreign currency debt service to reach 4.5% of GDP in every year between 2027 and 2032, domestic gross financing should, therefore, be limited at 8.5% of GDP for the period 2027-2032.’’
The second condition is: “While we recognise that the determination of the economic assumptions underpinning the IMF Programme Targets is ultimately the responsibility of the IMF and that the overall design of the IMF Programme is one that is negotiated between the IMF and Sri Lanka, it is nevertheless important that the Bondholder Group has the opportunity to express its views on both the economic assumptions underpinning these IMF Programme Targets and the adequacy and feasibility of the adjustment efforts contemplated under the IMF Programme. When considering any restructuring proposal that is made to the Bondholder Group, it is the Bondholder Group’s intention to take into consideration the extent to which the economic assumptions and the adjustment efforts are consistent with these views.
The third condition says: “Recognising the important commitments made by India in the India Letter, the Sri Lankan authorities will apply the principle of comparable treatment in respect of the debt relief requested and obtained from all their remaining official bilateral creditors.’’
In the IMF’s article IV consultation in March 2022, it was noted that “the public debt and gross financing needs are projected to have reached 118.9% and 30.1% of GDP, respectively, in 2021.’’
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