Sri Lanka is on the verge of completing its debt restructuring process, with agreements already secured for the majority of its US$28 billion in outstanding external debt. Following recent breakthroughs including a deal with China Exim Bank and the successful Eurobond exchange the government has narrowed the unresolved portion to just US$0.8 billion, officials confirmed.
The Finance Ministry said that bilateral debt restructuring agreements have already been signed with major lenders India and Japan, while it’s negotiating with the rest of the members of the Official Creditor Committee (OCC). Talks are ongoing with other bilateral creditors like Saudi Arabia, Kuwait, Iran, and Pakistan to seal everything by 2025
A senior Treasury official noted, “We are now well advanced in our engagement with all stakeholders and expect to finalise agreements shortly. This marks a turning point in our economic recovery.”
The International Monetary Fund (IMF) in its latest review acknowledged that Sri Lanka has fulfilled the Enhanced Safeguards under its Lending into Official Arrears (LIOA) policy.
With major creditors having signed Memoranda of Understanding (MOUs) or extended final restructuring terms, IMF approval for continued disbursement is no longer contingent upon the agreement of all creditors. Despite this progress, risks remain.
A US$250 million legal dispute with Hamilton Reserve Bank (HRB), stemming from a defaulted sovereign bond, continues to pose a threat to the debt sustainability framework. However, the IMF has both indicated that the overall risk is manageable.
“The impact is limited due to the relatively small bond amount under dispute and the protective design of the ‘most favored creditor’ clauses in the restructured bonds,” a senior official explained. The U.S. court overseeing the HRB litigation recently denied a motion for summary judgment, instead granting Sri Lanka additional time for discovery, a development seen as a temporary relief.
Meanwhile, financial advisors have been appointed to restructure US$175 million in international bonds issued by Sri Lankan Airlines and guaranteed by the government. Smaller commercial obligations, under US$50 million, also remain on the restructuring agenda.
Other reform measures continue in parallel, including updates to governance structures in state-owned banks and tax issues affecting foreign transactions. The Central Bank is also addressing liquidity risks through the Internal Liquidity Adequacy Assessment Process (ILAAP).
As most of the external debt restructuring is nearing its completion, attention now turns to long-term debt sustainability, economic reforms, and the restoration of investor confidence in the path of recovery of Sri Lanka
