Sri Lanka Finalises Key Debt Restructuring Agreement, President Announces

Sri Lanka's President Ranil Wickremesinghe announced on Wednesday that debt restructuring agreements with bilateral lenders, including India and China, have been finalised in Paris. He described this as a "significant milestone" that will enhance international confidence in the financially troubled nation. In a televised address, Wickremesinghe, who also serves as the finance minister, stated that Prime Minister Dinesh Gunawardena will present these agreements to Parliament on July 2 for ratification.

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Earlier in the day, the President's office released a statement confirming that Sri Lanka had reached a final restructuring agreement worth USD 5.8 billion with its official creditor committee in Paris. The president expressed gratitude to creditors such as China, India, Japan, and France for their support. He noted that these agreements would allow Sri Lanka to defer all bilateral loan instalments until 2028 and repay loans on concessional terms until 2043.

Debt Restructuring Details

State Finance Minister Shehan Semasinghe announced that a final agreement has been reached between Sri Lanka and China's Export-Import Bank. "On behalf of Sri Lanka, I would like to sincerely thank the OCC chairs - France, India, and Japan - as well as the Export-Import Bank of China for their leadership in this process," he said. Semasinghe also praised the OCC Secretariat for their dedication to resolving the debt crisis.

The agreement means that half of the government's external debt by creditor countries and organisations has been restructured. However, specific details of the restructuring are yet to be disclosed. Treasury figures indicate that by the end of March 2024, Sri Lanka's outstanding debt stock was USD 10,588.6 million.

Economic Impact

Wickremesinghe highlighted that these agreements would provide significant relief to Sri Lanka's economy. "In 2022, we spent 9.2% of our GDP on foreign debt payments," he said. "With the new agreements, it will pave the way for us to maintain debt payments at less than 4.5% of GDP between 2027 and 2032." He also mentioned plans to reach an agreement with commercial creditors, including International Sovereign Bond (ISB) holders.

The president criticised individuals who attempted to disrupt progress but assured they had not succeeded. "In the future, these detractors will face the shame of having betrayed their country," he stated. Posters captioned "good news" appeared on city walls earlier this week, seemingly part of a political campaign celebrating the debt restructuring success.

Future Plans

Having secured deals with bilateral creditors, the government plans another round of talks with private creditors and international sovereign bondholders for further restructuring. By March 2024, Sri Lanka's outstanding commercial loan stock was USD 14,735.9 million.

Sri Lanka declared its first-ever sovereign default in mid-April 2022 since gaining independence from Britain in 1948. The International Monetary Fund (IMF) made external debt restructuring a condition for a USD 2.9 billion bailout, with its third tranche released last week. Wickremesinghe has overseen the IMF programme while implementing tough economic reforms recommended by the global lender.

On Sunday, Wickremesinghe made his first public statement regarding the upcoming presidential election, likely to occur in September or October this year. Although he has not yet announced his candidacy, two main opposition leaders have already declared their intentions to run.

Wickremesinghe was elected through parliament in July 2022 as a stop-gap president following Gotabaya Rajapaksa's resignation amid public protests over his handling of the economic crisis.