Monday, October 3, 2022

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Sri Lanka begins engaging creditors on debt restructuring process soon

Sri Lanka will soon begin the process of engaging external creditors and sharing information with them on debt restructuring with weak bargaining power under post default scenarios,informed sources connected to IMF negotiations disclosed.

It will make a virtual presentation to external creditors on September 23 updating them on a deal agreed with the International Monetary Fund and recent economic developments, advisors Clifford Chance said.

Sri Lanka authorities will update creditors on more recent macroeconomic developments, main objectives of the reform package with the IMF and the next steps of the debt restructuring process on a virtual event.

The island nation defaulted on its external debt in April 2022 after two years of money printed to suppress interest rates and target an output gap (stimulus) which triggered foreign reserves losses, downgrades, and bondholders were no longer willing to roll-over debt.

Sri Lanka in April allowed interest rates to go up after a failed float, eventually reducing domestic private credit and outflows. Sri Lanka has since raised some taxes and struck a staff level deal with the International Monetary Fund and is seeking to restructure its debt.

“After the presentation of external creditors , the authorities will also participate in an interactive session where participants will be given the opportunity to ask their questions,” the statement said.

“The presentation as well as a comprehensive Q&A document will be published on the Ministry’s website after the event.”

It will be held on Friday, September 23, 2022 at 5.30pm Sri Lanka time which 8:00am New York (EDT) / 1:00pm London (BST)

Sri Lanka has to get assurances from creditors about their willingness to restructure debt for the International Monetary Fund to unlock credit from the agency and others and make the debt ‘sustainable’ according to an analytical methodology developed by the agency.

The country has to make reasonable progress on sovereign debt restructuring negotiations quickly – with private creditors (holders of International Sovereign Bonds and commercial loans) as well as bilateral creditors like Japan, China, and India

Annual foreign debt servicing has increased to $4.1 billion in 2020 from $1.3 billion in 2009 with Sri Lanka owing approximately $12.3 billion to private creditors, the largest external credit source, who hold International Sovereign Bonds (ISBs), Sri Lanka Development Bonds, and some of the syndicated loans.

Another $9 billion is owed to multilaterals and $5.6 billion to bilateral creditors , with a further $5 billion to China, and $3.5 billion to Japan.

Government authorities are going for debt restructuring negotiations on the back of China rejecting a request (made by the Sri Lankan government in March 2022) to reschedule its loans. China instead offered refinancing – a new $1 billion loan to help repay part of the existing loans.

The United States (US) Secretary of the Treasury, Janet Yellen, has informed that the US as a creditor country, will participate in restructuring Sri Lanka’s debt, presidential secretariat announced. .

The critical need for full cooperation of all official creditors in debt negotiations and restructuring through timely participation and equal burden sharing have been outlined.

The US Treasury welcoming President Ranil Wickremesinghe’s proposal for a Coordination Platform for Sri Lanka’s official bilateral creditors has urged engagement in this regard.

Sharing the common goal with Sri Lanka of expediting financing assurances, the US has expressed readiness to join other Paris Club members in this process, in keeping with its principles.

Further, the US Treasury has pledged to continue to engage with their other government agencies, as well as the World Bank and Asian Development Bank, to assist the people of Sri Lanka.

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