Sri Lanka’s debt-restructuring hangs in balance as deal yet to be inked

Creditor nations have given their approval for a debt-restructuring agreement with Sri Lanka but the beleaguered island-nation is yet to receive a letter of confirmation from the official creditor committee, an official aware of the development said on Wednesday. Sri Lanka, mired in its worst financial crisis in decades, has been trying to reach restructuring deals with creditors since last year, having being forced to default on its foreign debt in May 2022 after its foreign exchange reserves dwindled to record lows. “Sri Lanka has been informed of an agreement,” the official, who did not want to be identified, said. “It is confirmed that an agreement has been reached with bilateral lenders but we are still waiting on an official letter. We expect it soon.” The Sri Lankan president’s office and the finance ministry did not immediately respond to the development. Japan co-chairs the official creditor committee, together with France and India. China is Sri Lanka’s largest bilateral creditor and is an observer in the group, steering clear of joining the group as a formal member. The agreement comes about a month after the heavily indebted island nation reached a deal with the Export-Import Bank of China (EXIM) covering about $4.2 billion of outstanding debt. The EXIM deal will help Sri Lanka clear the first review of an International Monetary Fund (MF) bailout, and secure a second IMF funding tranche of about $334 million, the finance ministry has said. After receiving IMF approval, Sri Lanka could get further funds from the Asian Development Bank and the World Bank, bringing the total funding to around $900 million, central bank Governor P. Nandalal Weerasinghe said last week. ADB could provide $200 million as early as next month, the lender’s country director, Takafumi Kadono, told a forum in Colombo on Wednesday. The ADB’s funds are part of a $350 million special policy-based loan that was approved in May to support Sri Lanka. Sri Lanka’s total external debt is estimated at $36.6 billion, which includes $10.94 billion of bilateral debt, according to latest data released by its finance ministry. The country also needs to reach an agreement with bondholders who hold the bulk of the island’s $12.5 billion worth of international sovereign bonds.