South Asia

Sri Lanka reaches debt restructuring agreement with creditor nations

Published: 14:28, 29 November 2023

Sri Lanka has been informed that a debt-restructuring agreement with creditor nations has been reached but the official confirmation letter from the creditor committee is yet to arrive.

Amidst its most severe financial crisis in decades, Sri Lanka has been diligently pursuing restructuring agreements with creditors since the previous year. This dire situation unfolded after the country faced a predicament of defaulting on its foreign debt in May 2022 due to a drastic decline in its foreign exchange reserves, reaching record lows.
According to the anonymous government source, 'An agreement has been communicated to Sri Lanka. While the confirmation of the agreement with bilateral lenders is certain, an official letter is still pending. We anticipate its receipt shortly.'
Japan leads the official creditor committee in conjunction with France and India. Notably, China, as Sri Lanka's primary bilateral creditor, assumes the role of an observer within the group but refrains from formal membership.
This recent agreement with the consortium of creditor nations follows closely on the heels of Sri Lanka's prior arrangement with the Export-Import Bank of China (EXIM), encompassing approximately 4.2 billion US dollar of outstanding debt owed to China. The EXIM deal is poised to aid Sri Lanka in achieving the first review of an International Monetary Fund (IMF) bailout, facilitating the securing of a second IMF tranche amounting to roughly $334 million, as indicated by the country's finance ministry.
Sri Lanka's total external debt stands at an estimated $36.6 billion, encompassing $10.94 billion in bilateral debt, according to the most recent figures released by its finance ministry.
However, in addition to these strides, the nation faces the imperative task of reaching an agreement with bondholders, who collectively hold the majority of Sri Lanka's $12.5 billion worth of international sovereign bonds. Resolving these negotiations remains a pivotal aspect in the country's path to stabilizing its financial standing.