Sri Lanka has officially accepted offers to exchange approximately $10 billion worth of defaulted local debt for new bonds, according to a statement from the Finance Ministry on Tuesday. This move marks a significant stride towards meeting the prerequisites for debt restructuring ahead of an imminent review by the International Monetary Fund (IMF).
The island nation has been grappling with its most severe financial crisis in over seven decades, triggered by a depletion of foreign exchange reserves to historic lows, leading to a default on its debts in May 2022.
The bonds in question, primarily held by pension funds, were deemed eligible for exchange as part of a domestic debt restructuring initiative unveiled by Sri Lanka in June.
Out of the 8.7 trillion rupees in bonds eligible for exchange, a total of 3.2 trillion rupees have been accepted, as confirmed by the Finance Ministry in its statement. The exchange is scheduled to take place on September 14.
The Finance Ministry’s statement noted, “The success of the Invitation to Exchange will enable the Republic to reduce Gross Financing Needs (GFN) over the next 10 years, thereby contributing to achieving the Republic’s GFN target agreed in the context of the current IMF-supported program.”
An IMF delegation is set to arrive in Colombo on Thursday to commence the evaluation process for the first review of the $2.6 billion four-year program secured by Sri Lanka in March.
Under the auspices of the IMF program, Sri Lanka has set an ambitious goal of restructuring its debt over the next decade and lowering its debt-to-GDP ratio from the existing 120% to approximately 95% by 2032.
However, Sri Lanka’s journey towards debt restructuring still hinges on completing negotiations with key bilateral creditors, including Japan, China, and India, before proceeding with the next phases of the restructuring plan.
