Sri Lanka inks pacts with OCC, China to restructure debt
- In Reports
- 09:59 PM, Jun 27, 2024
- Myind Staff
On Wednesday, Sri Lanka signed debt restructuring agreements with the Official Creditors Committee (OCC), a group co-chaired by India, and China’s Exim Bank to restructure approximately $10 billion in bilateral debt, marking a significant step towards stabilising its crisis-hit economy.
This move brings Sri Lanka closer to concluding a debt restructuring process that began in September 2022, after the country's reserves hit their lowest levels, forcing the island nation to default on its foreign debt for the first time.
Following the International Monetary Fund's (IMF) approval of an extended fund facility for Sri Lanka in March 2023, the OCC was launched the following month to facilitate discussions among the country’s bilateral creditors and finalise a debt restructuring plan.
After several rounds of discussions, the OCC – co-chaired by India, France, and Japan – signed a memorandum of understanding (MoU) on debt restructuring on Wednesday.
“This milestone demonstrates the strong progress made by Sri Lanka in stabilising its economy and moving towards reform and growth,” the external affairs ministry said in a statement.
“India will continue to support Sri Lanka’s economic recovery, including by promoting long-term investments in its key economic sectors,” it said.
As a co-chair of the OCC, India was “steadfast in its commitment to the stabilisation, recovery and growth of the Sri Lankan economy”.
This commitment was demonstrated by India’s financial support of $4 billion to Sri Lanka when the country experienced its worst financial crisis about two years ago.
The agreements will be presented to parliament on July 2, President Ranil Wickremesinghe said during a post-signing address to the nation.
"All bilateral loan payments to foreign countries will be postponed till 2028. Additionally, Sri Lanka will have until 2043 to repay these loans on concessional terms," he said.
Sri Lanka will use this opportunity to recommence stalled foreign-funded development projects and promote economic growth, he added.
India was also the first creditor nation to provide financing assurances to the IMF, which facilitated Sri Lanka's securing of the IMF bailout.
While the agreement with the OCC was signed in Paris, the other agreement with China’s Exim Bank was concluded in Beijing. People familiar with the matter said on condition of anonymity that two agreements were needed largely because China refused to agree on the same terms for restructuring Sri Lanka’s debt as the other creditors.
Sri Lankan President Ranil Wickremesinghe recently told a business meeting in Colombo that India had played a crucial role in his country’s economic recovery. “Having now survived two difficult years, I must acknowledge that this was possible because India gave us a loan of $3.5 billion. All that will be repaid,” he said.
On Wednesday, Wickremesinghe expressed his gratitude to Sri Lanka’s creditors, including India, Japan, and France, as well as China, for their support in successfully concluding negotiations on debt restructuring.
With these agreements, Sri Lanka will defer all bilateral loan installment payments until 2028, and it will have the opportunity to repay all loans on concessional terms over an extended period until 2043. In 2022, Sri Lanka spent 9.2% of its GDP on foreign debt payments. However, these two agreements will enable the country to reduce debt payments to less than 4.5% of GDP between 2027 and 2032.
Image source: Indian Express
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