Debt deal in sight: Sri Lanka set to sign agreements with lenders amid economic woes

A treasury delegation is on its way to France to sign agreements with creditors on Wednesday, government spokesman Bandula Gunawardana said. Sri Lanka defaulted on its foreign debt in April 2022 after running out of foreign exchange, and the unprecedented economic crisis forced the then president Gotabaya Rajapaksa to step down.

The government had expected a debt deal with all its creditors before the end of 2022, but negotiations dragged.

Bilateral creditors account for 28.5 percent of Sri Lanka’s current outstanding foreign debt of $37 billion, according to treasury data at the end of March. China is the largest single bilateral lender, accounting for $4.66 billion out of a total of $10.58 billion borrowed from other countries. Japan is second, with $2.35 billion, and India is third with $1.36 billion.

Sri Lanka’s commercial borrowings include $12.55 billion raised through International Sovereign Bonds (ISB), and another $2.18 billion from the China Development Bank.

“Talks with ISB holders are still ongoing,” Gunawardana said, adding that the debt deal with bilateral creditors was an important achievement for the island.

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He said President Ranil Wickremesinghe will disclose details of the deal with official creditors in a speech to the nation on Wednesday evening.

While the cabinet of ministers has approved the terms of the agreements with creditors, Gunawardana declined to provide detail, saying that would be announced by the president on Wednesday.

The International Monetary Fund gave Sri Lanka this month the latest tranche of $336 million out of a $2.9 billion rescue package designed to help repair the island nation’s ruined finances over four years.

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Sri Lanka is due to hold a presidential election this year and opposition parties have vowed to renegotiate the terms of the IMF bailout.

IMF’s Sri Lanka mission chief Peter Breuer said they were willing to listen to alternative proposals from rival political parties, but said it was necessary to stick with the benchmarks set in the bailout. Sri Lanka had made good progress, but the country was not out of the woods yet, he said.

Last month, the Asian Development Bank has forecast Sri Lanka’s economy to record moderate growth of 1.9 per cent in 2024 and 2.5 per cent in 2025 following two consecutive years of contractions. The Asian Development Bank’s (ADB) growth forecast hinges on the continuation of reforms and better consumer and business sentiment along with the timely completion of external debt restructuring that will also support Sri Lanka’s debt sustainability efforts.