Sri Lanka’s Central Bank expects finalisation of debt restructuring process by June

The Government has gained progress on the debt restructuring process with the successful completion of the Domestic Debt Optimisation (DDO) which is expected to extend the maturity of domestic debt and reduce the stress on government finances, Central Bank (CB) Governor Nandalal Weerasinghe told a media conference this week.  

Sri Lanka has entered into an agreement in principle (AIP) with both the Official Creditors Committee (OCC) and the Export-Import Bank of China (EXIM Bank) for debt restructuring.

The agreement in principle covers approximately US$ 5.9 billion of outstanding public debt and consists of a mix of long-term maturity extension and reduction in interest rates.

The agreed-upon debt treatment terms will be further detailed and formalised in a Memorandum of Understanding (MoU) between Sri Lanka and the OCC, which will then be implemented through bilateral agreements with each OCC member, in accordance with their laws and regulations.

The CB Governor also noted that negotiations with other external and commercial creditors are continuing expressing expectations that agreements will be reached with them soon.

However, it is still to reach consensus on the debt restructuring with sovereign bond holders, who had lent over $25 billion before the Sri Lanka declared debt repayment stand still or preemptive default in April 2022.

The government will conclude the MOUs with them and strike a deal on plans of the issuance of new bonds with longer maturity by cancelling previous ones and differing interest rates, he disclosed.

The next steps will include finalising similar agreements with remaining official bilateral creditors, including Saudi Arabia, Pakistan, Kuwait and Iran, altogether representing a further $274 million of outstanding claims, Finance Ministry sources said.  

“It's our strong expectation that there would be an agreement in principle by the time of the second IMF review by June,” the CB Governor said adding that the next tranche of $334 million IMF EFF will be disbursed thereafter.

The execution of the domestic debt restructuring was an important milestone. A swift completion of final agreements with official creditors and reaching a resolution with external private creditors remain critical, senior International Monetary Fund (IMF) mission Chief Peter Breuer told a media conference recently. (BS)