Sri Lanka has successfully negotiated a crucial debt restructuring agreement with international sovereign bondholders, marking a significant development in its efforts to stabilize its financial situation. The announcement was made by State Finance Minister Shehan Semasinghe, who emphasized the importance of the agreement in restoring the country’s debt sustainability.
The restructuring deal, finalized on Wednesday, addresses International Sovereign Bonds (ISBs) totaling USD 12.5 billion, a substantial portion of Sri Lanka’s external debt which stands at USD 37 billion. This agreement is seen as pivotal in Sri Lanka’s ongoing economic revival strategy.
Under the terms of the agreement, bondholders are expected to accept a haircut of approximately 28%, which involves a reduction in the amount owed. Payments to ISB holders are set to commence in September this year, facilitating a phased approach to managing the debt burden.
This milestone follows earlier agreements reached with bilateral lenders such as India and China in June, which President Ranil Wickremesinghe described as essential for bolstering international confidence in Sri Lanka’s economy.
Sri Lanka faced its first-ever sovereign default in mid-2022 due to depleted foreign exchange reserves, triggering a halt in debt services and limiting access to new financing. The restructuring process became a prerequisite for continued support under an International Monetary Fund (IMF) bailout of USD 2.9 billion extended in March 2023.
President Wickremesinghe defended the restructuring process against opposition criticism, asserting that while no bilateral creditors agreed to reduce principal amounts, concessions were made through extended repayment periods, grace periods, and reduced interest rates.
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Parliamentary and Public Reaction
The government’s handling of the debt restructuring process has sparked debate and criticism from the opposition, who have questioned the terms and outcomes of the negotiations. President Wickremesinghe pledged transparency by committing to share all agreements and documents related to debt restructuring with a parliamentary committee.
In response to concerns raised, discussions in parliament regarding the restructuring agreements were postponed, highlighting ongoing scrutiny and public interest in the economic measures undertaken by the government.
Looking ahead, the successful restructuring of international sovereign bonds positions Sri Lanka to navigate its financial challenges and work towards sustainable economic recovery. The government’s next steps include implementing the agreed-upon terms while managing public and parliamentary expectations for transparency and accountability in financial matters.
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