Sri Lanka Ratifies Debt Restructuring: IMF Bailout Key

Colombo, Nov 26 (PTI) Sri Lanka's new government on Tuesday announced that it has ratified the agreement for debt restructuring – sealed in the previous regime – for USD 14.2 billion – compulsory to maintain debt sustainability by the IMF through an exchange of new bonds for the existing bonds.

The development comes days after the National People's Power (NPP) government on Saturday got the International Monetary Fund (IMF) approval for a staff-level agreement to secure the fourth tranche of the nearly USD 3 billion bailout package, something that President Anura Kumara Dissanayake backed despite his pre-presidential election rhetoric to renegotiate with the global lender to water down tough conditions.

The debt restructuring agreement was reached in the last week of the then President Ranil Wickremesinghe's regime in September, days before the presidential polls.

“A final consensus on restructuring debt by the members of the Official Credit Committee (OCC) of major bilateral creditors in June 2024. In September 2024, an initial agreement has been reached with the international bondholders on restructuring of sovereign debt of USD 14.2 billion,” a cabinet spokesman announced on Tuesday after the Sri Lankan cabinet ratified the debt restructuring agreement on Monday.

In his inaugural address to the newly convened parliament after his party's landslide victory, President Dissanayake on Thursday backed the IMF bailout package and affirmed his administration's commitment to continue the IMF bailout programme initiated by his predecessor Wickremesinghe.

A statement from the government said that after further discussions with the ad hoc bondholders, a group of representatives of international investors, and the local consortium of Sri Lanka, the Cabinet of Ministers approved the proposal presented for restructuring of international sovereign bonds through an exchange of new bonds for the existing bonds.

“This (exchange of bonds) is to be done after an analysis by the Sri Lankan government's financial advisors on the impact on the Sri Lankan economy and the composition of the Sri Lanka's international sovereign debt, investors and settlements and as per the provisions under the IMF facility and according to the parameters shown by the debt sustainability analysis carried out by the IMF.

Analysts said this completes the debt restructuring programme initiated by President Wickremesinghe.

A staff-level agreement is a preliminary pact reached between the IMF staff and the government of a country on a set of economic policies and reforms that the country must implement in exchange for financial assistance from the global lender.

Altogether, the IMF has extended the island nation an Extended Fund Facility (EFF) of USD 2.9 billion. IMF's Saturday approval for the staff-level agreement will facilitate the fourth tranche – around USD 330 million – of the four-year facility.

Sri Lanka had plunged into an economic crisis when the island nation declared sovereign default in mid-April of 2022, its first since gaining independence from Britain in 1948. Almost civil-war-like conditions and months of public protests led to the fleeing of the then president Gotabaya Rajapaksa.

Wickremesinghe took over and the negotiations with the IMF began soon after. His government then clinched the bailout a year later in March 2023.

As of July 2024, Sri Lanka's external debt stood at a total of USD 37 billion, which includes USD 10.6 billion in bilateral credit and USD 11.7 billion in multilateral credit. The commercial debt was USD 14.7 billion, of which USD 12.5 billion is in sovereign bonds.

Debt restructuring agreement with both bilateral and sovereign bondholders was made compulsory to maintain debt sustainability by the IMF.

On Thursday. Dissanayake had also said that soon, there will be separate agreements with each country on debt restructuring, and hopefully, all will be finalised by the end of this year.

The NPP created history in the November 14 election by winning 159 seats in the 225-member assembly. This was the first time that a party won two-thirds control or over 150 seats in a parliamentary election held since 1989.

The ruling NPP was critical of the entire process and had vowed to renegotiate it to make more advantageous to the island.