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Paris Club creditors propose a 10-year moratorium on Sri Lankan debt

The Paris Club creditor nations are proposing a 10-year moratorium on Sri Lankan debt and another 15 years of debt restructuring as a formula to resolve the current financial crisis in the Island nation.

The Paris Club has said that it is ready to start the debt treatment process of Sri Lanka following the conclusion of the Staff-Level Agreement with the International Monetary Fund (IMF), Hindustan Times reported.

The Paris Club in a statement also reiterated its willingness to coordinate with non-Paris Club official bilateral creditors to provide the necessary financing assurances in a timely manner and ensure fair burden sharing, as already proposed to the largest other official bilateral creditors.

“The Paris Club remains at the disposal of Sri Lanka authorities and non-Paris official bilateral creditors to further discuss the next steps of the debt treatment process,” it said.

The statement said Paris Club members welcome the SLA between the Sri Lankan Government and the IMF for a 48-month arrangement under the Extended Fund Facility worth $ 2.9 billion.

“This agreement represents an important step to restore macroeconomic stability and public debt sustainability,” the statement added.

While the Paris Club is still to formally reach out to India and China, two of Sri Lanka’s biggest creditors with Beijing holding near 50 per of external debt.

Sri Lanka government on its part is still to initiate a formal dialogue with China and India ,the chances of getting extended fund facility of USD 2.9 billion approved from IMF executive board this month range from very low to non-existent.

This means that Sri Lanka will have to wait for the March IMF meeting of the IMF before any aid is extended by the Bretton Woods institution.

While Sri Lanka owes some US4 800 million in structured debt to India, the Modi government has provided emergency aid to the tune of USD four billion to the Island nation to tide over its economic crisis.

China, Chinese Exim, and China Development Bank hold billions of US dollar debt with Sri Lanka with the total external debt of the Island nation touching nearly US$ 40 billion.

The Sri Lanka Government public debt has gone up from 115.3 per of the GDP in end-2021 to 143.7 per cent of the GDP in end June 2022. During 2022, the debt has increased further due to foreign exchange depreciation, deep recession and fiscal deficit with no signs of early revival.

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