Sri Lanka Reaches 'Decisive' Debt Restructuring Deal with Creditors

Colombo, Nov 30 (PTI) The Sri Lankan government informed Parliament on Thursday that it has reached a "decisive" agreement with bilateral creditors on debt restructuring that will enable the IMF to conclude its first review of the USD 2.4 billion bailout facility for the debt-ridden island nation.

The Official Creditor Committee (OCC) co-chaired by India, Japan and France on Wednesday reached an agreement with Sri Lanka on the main parameters of debt treatment, consistent with those of the International Monetary Fund-supported Extended Fund Facility (EFF) for the country.

This agreement will pave the way for the first review of Sri Lanka's EFF arrangement with the IMF and enable further flow of funds to Colombo.

“We received a decisive verdict yesterday (Wednesday) from the Official Creditor Committee to restructure our debt," Shehan Semasinghe, the state minister of finance told lawmakers.

He said 17 countries are members of the OCC, including India and headed by France.

“Although China is not a member they have pledged us all assistance," Semasinghe added.

In October, the Sri Lankan government confirmed that it had concluded a preliminary deal with China on restructuring its debts to Beijing, seen as a "big step" in the cash-strapped country's economic recovery.

China holds about 52 per cent of Sri Lanka's USD 46 billion external credit. Both nations reached an agreement on the key principles and indicative terms of debt treatment with the Export-Import Bank of China.

Semasinghe said this preliminary agreement would be crucial in completing the review of the USD 2.9 billion bailout from the IMF.

The process was made possible by President Ranil Wickremesinghe's pledge to all creditors that there would be equal and transparent treatment of all creditors.

Semasinghe said with the release of the IMF's second tranche soon Sri Lanka would be able to resume all projects that had been halted due to forex needs in the economic crisis.

The finance ministry on Wednesday said about USD 6 billion of loans would be restructured either with extended time for repayment or reduction of interest.

Sri Lanka declared bankruptcy in April 2022 which saw the ouster of the Gotabaya Rajapaksa government mid-year. The island nation announced its first-ever sovereign default since gaining independence from Britain in 1948.

The Rajapaksas and their fiscal hierarchy were found responsible for the economic downturn by Sri Lanka's Supreme Court under a fundamental rights petition.