Sri Lanka Defers Debt Payments Until 2027

Colombo, May 31 (PTI) Sri Lankan President Ranil Wickremesinghe has said that a strategic decision has been made to defer debt payments until 2027 and focus on renegotiating repayment terms to extend until 2042.

The island nation, in April 2022, declared its first-ever sovereign default since gaining independence from Britain in 1948. The unprecedented financial crisis led President Wickremesinghe's predecessor Gotabaya Rajapaksa to quit office in 2022.

Earlier in the month, Foreign Minister Ali Sabry had said Sri Lanka is looking at a reduction of approximately USD 17 billion from its overall debt burden in the ongoing debt restructuring process.

In March, the International Monetary Fund (IMF) said it has reached a staff-level agreement with Sri Lanka for the next phase that would enable it access to USD 337 million from the nearly USD 3 billion bailout approved in 2023 for the cash-strapped country.

Two tranches of USD 330 million each were released in March and December 2023 even as the Washington-based global lender has praised Colombo for its macroeconomic policy reforms, which it said, “are starting to bear fruit.”

President Wickremesinghe, while speaking at the ‘Leslie Devendra Sinhavalokanaya' ceremony here on Thursday said though the interest payments are required to be made during the said period, “the debt need not be serviced.”

“We have made the strategic decision to defer debt payments until 2027, focusing on renegotiating repayment terms to extend until 2042,” he said, according to news portal NewsFirst.lk.

“Our aim is to safeguard the country's economy from collapse under the weight of debt burdens. However, reliance on imports may necessitate further borrowing, prompting us to prioritise strategies for repayment,” Wickremesinghe, also the finance minister, was quoted as saying by the President's Media Division.

“Moreover, we have opted to restrict domestic borrowing, affecting the availability of funds from institutions like the Employee Provident Fund. This prompts considerations on whether to invest domestically or internationally, sparking discussions within the trade union movement,” he said.

The President has said that the government is committed to fortifying key institutions such as the People's Bank, the Bank of Ceylon, and the National Savings Bank while maintaining government ownership, and also aims to “secure government influence in limited and private banks to bolster the financial sector and propel economic growth.”

“Acknowledging the plight of our citizens, we are mindful of the escalating poverty rate, which has surged from 15 per cent in 2019 to 26 per cent presently. Addressing this challenge requires concerted efforts to provide livelihood opportunities and enhance access to education for all segments of society,” Wickremesinghe said.

“Accordingly, we have agreed to reduce it to 10 per cent by 2032, as stipulated in the loan conditions set by the International Monetary Fund. Therefore, we must persist with this programme,” Wickremesinghe said.