Sri Lanka will save $5 billion in interest owed to bilateral creditors as part of its debt restructuring process, President Ranil Wickremesinghe announced on Tuesday. These funds will be used to enhance dollar reserves and stimulate economic growth.
Agreements with Creditors
The South Asian country recently reached agreements with China and other creditor nations to restructure approximately $10 billion in bilateral debt. This comes after 15 months of negotiations, as Wickremesinghe informed parliament. The deals mark a significant step towards concluding a debt restructuring process that began in September 2022, following a severe depletion of foreign exchange reserves that led Sri Lanka to default on its foreign debt for the first time.
Benefits and Terms of the Agreement
President Wickremesinghe highlighted the multiple benefits of the new agreements. The repayment period has been extended by eight years, now due in 2043, with interest rates adjusted to 2.1% or less. These terms position Sri Lanka among the middle-income nations that have successfully navigated the debt restructuring process swiftly.
Ongoing Debt Restructuring Efforts
Talks are progressing well with bondholders to restructure an additional $12.5 billion in debt, with a conclusion expected soon. Wickremesinghe commenced a two-day parliamentary debate on the restructuring process, noting the importance of finalising arrangements with the China Development Bank to restructure $2.2 billion in debt, as per the latest finance ministry data.
IMF Support and Future Prospects
The International Monetary Fund (IMF) underpins the debt restructuring effort with a $2.9 billion programme. This support aims to restore Sri Lanka’s debt sustainability, allowing the country to use the saved funds to improve public services, increase reserves, and reduce domestic interest rates. Once the entire restructuring process is complete, Sri Lanka hopes to reduce its debt burden by $16.9 billion.
The Central Bank of Sri Lanka forecasts the economy will expand by 3% in 2024, following a contraction of 2.3% last year.
With Inputs from Reuters
