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Sri Lanka optimistic about finalising debt restructuring talks in London
View(s):By Bandula Sirimanna
Given the current favourable macroeconomic headwinds and economic resurgence, Sri Lanka is optimistic about finalising debt-restructuring talks in London with international creditors and entering into an agreement on the US$12 billion debt re-work proposal, a senior Finance Ministry official told the Sunday Times. The talks ended this week with Treasury Secretary Mahinda Siriwardena and Central Bank Governor Nandalal Weerasinghe leading the Sri Lanka negotiating team.
The government’s macroeconomic policy reforms are starting to bear fruit. Commendable outcomes include rapid disinflation, robust reserve accumulation, and initial signs of economic growth while preserving the stability of the financial system, the official added.
Sri Lanka will be bringing its debt service levels to below 30 percent of revenue. Public finances have strengthened following substantial fiscal reforms, and it is critical that this reform momentum be continued.
The debt deals being negotiated with a group of bondholders’ steering committee have not been provided with real debt cancellations or actual write-offs of debt stock, a former Finance Ministry official now living in London told the Sunday Times.
The rescheduling agreement reached so far with bondholders by Sri Lankan authorities suggests a loan repayment moratorium for its US$ 12 billion bilateral debts until 2028.
A 30 percent ‘haircut’ on dollar-denominated bonds, including international sovereign bonds, is among the major clauses included in the new debt restructuring proposal.
Sri Lanka has submitted a new restructuring proposal to dollar bondholders through its adviser Lazard as the government seeks to complete revamping its defaulted debt, according to the London-based official familiar with the IMF negotiations.
The deals with bondholders may include contingency clauses to increase payments to them if or when the country reaches positive economic results.
These contingency clauses ensure more benefits for the private creditors if the country does well, but they do not include reduced payments if there is a negative shock.
The government plans to replace current US dollar-denominated ISBs with new ones in the same currency.
The outstanding value of these ISBs amounts to $12.1 billion, a significant portion of the $22 billion external debt slated for restructuring.
Sri Lanka’s external debt stock stood at $37.3 billion as of December 2023, bilateral debt at $10.8 billion, multilateral debt at $10.84 billion, and commercial loans at $14.74 billion.
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