Sri Lanka reaches long-delayed debt restructuring agreement, ensures strong ties with India amid economic recovery
- In Reports
- 03:29 PM, Oct 05, 2024
- Myind Staff
Colombo has announced a long-awaited debt restructuring agreement with its sovereign bondholders, offering much-needed relief to the cash-strapped island nation. In a statement issued on October 4, Sri Lanka’s Ministry of Finance confirmed that an agreement was reached on September 19 with international and local holders of International Sovereign Bonds (ISB). The Ministry stated that the deal aligns with the "comparative treatment principle" and has been finalised following consultations with Sri Lanka’s Official Creditor Committee (OCC) and the International Monetary Fund (IMF).
The announcement comes after the new government, led by President Anura Kumara Dissanayake's National People’s Power (NPP), expressed its willingness to accept the agreement during talks with an IMF delegation in Colombo on October 3 and 4. The IMF had made debt restructuring a condition for the $2.9 billion four-year facility granted to Sri Lanka in March 2023 under the previous administration of Ranil Wickremesinghe.
So far, Sri Lanka has received three tranches of approximately $360 million each under the IMF's Extended Fund Facility. The global lender noted in August that Sri Lanka’s economic reform program was showing positive results, with the third tranche released in mid-June. The Wickremesinghe-led government, which undertook the debt restructuring process, announced an in-principle agreement with external commercial creditors to restructure approximately $17.5 billion in external debts, just days before the presidential elections in September.
Following his defeat in the elections, Wickremesinghe, who also served as finance minister, was succeeded by Dissanayake, whose NPP party had labelled the IMF deal a "death trap" during the campaign, vowing to renegotiate its terms. However, the new government has since agreed to proceed with the restructuring deal.
Sri Lanka’s financial crisis, which began in 2022, led to the country’s first-ever sovereign default and triggered the resignation of former President Gotabaya Rajapaksa amidst mass civil unrest.
The OCC, led by Japan, France, and India, is responsible for approximately $5.9 billion of Sri Lanka's outstanding external debt, which totals $37 billion. The Export-Import Bank of China (EXIM) holds an additional $4 billion in debt. Among bilateral creditors, China remains the largest, with $4.7 billion owed, followed by India at $1.74 billion and Japan at $2.68 billion. Notably, China is not a member of the OCC, despite its significant financial stake in Sri Lanka.
In a parallel development, President Dissanayake has pledged not to allow Sri Lanka’s territory to be used for any activities that could threaten India’s security. During a meeting with Indian External Affairs Minister S. Jaishankar in Colombo, Dissanayake reaffirmed his commitment to protecting India’s interests. The meeting occurred against the backdrop of India’s concerns over the presence of Chinese research vessels near Sri Lankan ports.
Jaishankar, the first foreign dignitary to visit Sri Lanka under the new administration, assured that India will continue to support Sri Lanka in its economic rebuilding efforts. Both sides also extended mutual invitations for official state visits, signalling a continued strengthening of ties between the two nations amidst Sri Lanka’s ongoing recovery.
Comments