Sri Lanka secures partial debt deal following financial crash.
The defaulted Sri Lanka announced on Wednesday that it had signed a restructuring deal with key bilateral lenders, covering up to $5.8 billion in debt.
This is a milestone in the country’s recovery efforts following a severe financial crisis in 2022.
Deal with Official Creditor Committee:
The agreement, reached with the Official Creditor Committee (OCC) in Paris, includes members such as France, India, and Japan.
The office of President Ranil Wickremesinghe later released a statement and confirmed the deal.
However, the specific details were not revealed.
“Sri Lanka reached a final restructuring agreement for $5.8 billion of debt with its bilateral lenders’ Official Creditor Committee (OCC) in Paris, France,” the statement read, without giving further details.
Exciting news! 🇨🇳🤝🇱🇰
Chinese Ambassador, H.E. Qi Zhenhong just signed the vital Government Concessional Loan Agreement.
Great contributions to Sri Lanka debt restructuring!
Congratulations to Sri Lankan People!#SriLanka #China #EconomicPartnership #DebtRestructuring pic.twitter.com/S9d1QMu4dw— Chinese Embassy in Sri Lanka (@ChinaEmbSL) June 26, 2024
China’s Role and Future Negotiations:
Notably, China, Sri Lanka’s largest single bilateral lender, is not part of the OCC.
However, Sri Lankan officials involved in the talks expressed hope that a similar agreement with Beijing could be concluded in the near future.
Also read: China confirms offer to Sri Lanka of debt moratorium
China holds $4.66 billion of Sri Lanka’s bilateral debt.
IMF Bailout Conditions and Progress:
The restructuring deal is a crucial condition for a bailout from the International Monetary Fund (IMF).
Also read: US invests $553 Million in Adani Port in Sri Lanka to stop China’s influence
Earlier this month, the IMF disbursed the latest tranche of $336 million from a $2.9 billion rescue package designed to repair Sri Lanka’s finances over four years.
Bilateral creditors account for 28.5% of Sri Lanka’s outstanding foreign debt, which totals $37 billion.
Breakdown of Debt:
Japan and India are also major creditors, with Japan accounting for $2.35 billion and India for $1.36 billion of Sri Lanka’s bilateral debt.
In addition to bilateral loans, Sri Lanka’s commercial borrowings include $12.55 billion raised through International Sovereign Bonds (ISB) and another $2.18 billion from the China Development Bank.
Upcoming Presidential Address and Election:
President Wickremesinghe is expected to address the nation later on Wednesday to provide further details of the restructuring deal.
This comes as Sri Lanka prepares for a presidential election this year, with opposition parties promising to renegotiate the terms of the IMF bailout if they come to power.
IMF’s Position on Alternative Proposals:
Peter Breuer, the IMF’s mission chief for Sri Lanka, observed the country’s progress but cautioned that more work remains to be done.
He stated that while the IMF is open to alternative proposals from rival political parties, it is essential to stick to the benchmarks set in the bailout agreement.
A Path to Stability:
As Sri Lanka secures partial debt deal following financial crash, the agreement represents a major step for Sri Lanka as it seeks to stabilize its economy and move forward from the unprecedented economic crisis that led to the resignation of former president Gotabaya Rajapaksa in 2022.
The nation’s ability to secure favorable terms with its creditors and maintain the course set by the IMF will be crucial for its long-term economic health.
