Sri Lanka reached a final restructuring agreement for US$ 5.8 billion of debt with its bilateral lenders’ Official Creditor Committee in Paris, France today.

According to the President’s Media Division (PMD), this agreement with bilateral lenders grants significant debt relief.

The PMD added that this agreement also allows Sri Lanka to allocate funds to essential public services and secure concessional financing for its development needs. 

Meanwhile, taking to ‘X’, State Minister of Finance Shehan Semasinghe announced that the final agreement was reached on debt restructuring between Sri Lanka and the Official Creditor Committee (OCC) on the sidelines of the Paris Forum 2024 in France.

The State Minister further said that Sri Lanka is also in the process of signing bilateral debt treatment agreements between Sri Lanka and the Export-Import Bank of China today.

“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, as well as all OCC members for their unwavering support. 

“I also commend the OCC Secretariat for their dedication to finding a resolution to our debt crisis and achieving this significant milestone, which will enhance confidence in our economy and foster growth,” he said.

State Minister of Finance Shehan Semasinghe further reiterated that the unwavering commitment and leadership of President Ranil Wickremesinghe have been instrumental in steering Sri Lanka towards this milestone achievement. (Newswire)

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The relevant agreements on debt restructuring with the Paris Club and other stakeholders will be signed on Wednesday (June 26), the government said. 

The announcement was made by Cabinet Spokesman Minister Bandula Gunawardena during the weekly Cabinet media briefing held today. 

The Cabinet Spokesman further said that the relevant agreements on debt restructuring with the Paris Club and other stakeholders have received Cabinet approval. 

Stating that a team of Sri Lankan officials have already left the country to sign the agreement, Minister Bandula Gunawardena said that upon the signing of the relevant agreements, the President will brief the Parliament and nation in this regard. 

Sri Lanka which faced a severe economic crisis in 2022 owes close to $14 billion to a wide range of bilateral creditors, of which 66% is owed to non-Paris Club members.

The country also needs to renegotiate around $12 billion with overseas bondholders after defaulting on its international debt in 2022. (Newswire)

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Sri Lanka’s Central Bank Governor Nandalal Weerasinghe says the government has shared the terms of a $4.2 billion China debt deal with its other creditors, according to Bloomberg News.

Bloomberg reported that Sri Lanka’s central bank chief said the government has shared the terms of a $4.2 billion China debt deal with other creditors — a key sticking point with countries like India — paving the way for more loans from the International Monetary Fund.

Weerasinghe said he hopes the official creditors committee, which is led by Japan, India and the Paris Club of nations, will now propose an agreement to restructure Sri Lanka’s debt. 

In an interview in Colombo on Thursday, Weerasinghe said he expects that will allow the IMF to approve a payout of $330 million before the end of the year.

Sri Lanka’s recent debt deal with the Export-Import Bank of China caught the IMF and creditor nations like India by surprise, with some officials raising concerns about the lack of transparency over the agreement. China, which is Sri Lanka’s biggest bilateral lender, isn’t part of the official creditors committee.

Weerasinghe said details of the China agreement have now been shared with the creditor committee and the IMF.

“We hope the official creditors will also respond with their support so that we can go ahead” with the IMF’s funding program, he said. He didn’t disclose the terms of the China deal in the interview.

Sri Lanka is trying to reach a debt restructuring agreement with its bilateral creditors and bondholders to allow it to keep receiving funds under a $3 billion bailout package with the IMF. That would help to further stabilize the economy after the worst crisis in seven decades last year forced the nation to default on its debt for the first time in its history.

“We are moving in the right direction,” Weerasinghe said.

Sri Lanka has also received a debt restructuring proposal from a group of dollar bondholders, which didn’t get the backing of the government. Weerasinghe said the authorities continue to engage with commercial lenders, who may also be waiting to assess the debt proposal from bilateral creditors.

A career central banker, Weerasinghe took office in April 2022 when the economy was in a tailspin, with shortages of everything from fuel and electricity to medicine. Inflation hit a peak of nearly 70% later that year and angry protests forced then-President Gotabaya Rajapaksa to flee the country.

Inflation is now down to 1.5%, foreign exchange reserves have rebounded to $3.6 billion, and shortages of essentials have eased.

Weerasinghe reiterated that the central bank was leaving the exchange rate to market forces while only intervening to smooth volatility and accumulate reserves when the opportunity provided.

A 12% surge this year has catapulted the island nation’s currency to among the top performers globally. That’s a remarkable turnaround from its 45% slide in 2022. Funds from the IMF have also spurred optimism over Sri Lanka’s fiscal recovery, with the nation’s dollar bonds returning almost 70%.

Weerasinghe has played a pivotal role in securing the IMF bailout and has been a key figure in the debt negotiations with creditors. He’s also championed a new Central Bank Act that aims to ensure price stability through a flexible inflation-targeting regime and independent monetary policy decision-making.

The governor also made the following comments in the interview:

• Sri Lanka is well in line with targets set out in the IMF program, including building foreign exchange reserves and central bank credit to the government.
• He would like to see reserves increased to about 3 months of import cover, but may not be as much as the IMF is recommending as the country intends to eventually move toward a fully floating exchange rate.
• Monetary policy transmission would speed up, and the gap between policy and market rates would narrow, once uncertainties over the debt restructuring are cleared. (NewsWire / Bloomberg)

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Sri Lanka President Ranil Wickremesinghe will undertake an overseas visit next week to meet Paris Club members with regard to debt restructuring.

Cabinet spokesman Minister Bandula Gunawardena told the media today that the President will visit the United Kingdom (UK) and France next week.

He further stated that the President will meet Paris Club members to discuss resolving Sri Lanka’s debt issue.

Sri Lanka is engaged in talks with its international creditors with regard to debt restructuring in a bid to revive its economy.

In October last year, the Paris Club assured its fullest support for Sri Lanka’s ongoing efforts to find an early resolution to its debt crisis.

In January 2023, Paris Club Creditors provided financing assurances to support the International Monetary Fund’s (IMF) approval of an Extended Fund Facility for Sri Lanka.

Thereafter, the IMF Executive Board approved a 48-Month arrangement of about US$ 3 billion under the Extended Fund Facility (EFF) with Sri Lanka in March 2023.

However, Sri Lanka is continuing discussions with various of its creditors to restructure its debt. (NewsWire)

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Sri Lankan authorities formally presented on Tuesday a request for debt treatment in the first meeting of the official bilateral creditors’ committee, the Paris Club said in a statement.

According to Reuters, the committee, co-chaired by India, Japan and France, consists of 17 members and includes Paris Club creditors as well as other official bilateral creditors.

Paris Club members with no claims on Sri Lanka, such as Saudi Arabia and Iran, were observers at the meeting, according to the statement.

Meanwhile, China also attended as an observer the first meeting of Sri Lanka’s creditor nations on Tuesday.

A move that offers policymakers some hope Beijing will become more engaged in talks to resolve the debt woes of low- and middle-income countries across the world.

The meeting, within a new framework launched in Washington D.C. in April that creditors hope will serve as a model to resolve the debt difficulties of middle-income economies, was held online.

Japan, which initiated the launch together with India and France, invited all bilateral creditors, including the largest, China.

Masato Kanda, Japan’s top financial diplomat, told reporters after the meeting that China attended as an observer, adding he hoped it would participate as a full member in future meetings.

Last month, France, India and Japan unveiled a common platform for talks among bilateral creditors to co-ordinate restructuring of Sri Lanka’s debt.

Sri Lanka owes $7.1 billion to bilateral creditors, government data show, with $3 billion owed to China, followed by $2.4 billion to the Paris Club of creditor nations and $1.6 billion to India.

The government also needs to renegotiate more than $12 billion of debt in Eurobonds with overseas private creditors, and $2.7 billion of other commercial loans.

Sri Lanka has kicked off talks to rework part of its domestic debt and aims to finalise a deal by May. (NewsWire)

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