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Sri Lanka optimistic in reaching agreement following debt-restructuring talks

By: Staff Writer

June 11, Colombo (LNW): Given the current favorable macroeconomic headwinds and economic resurgence, Sri Lanka’ is optimistic in finalising debt-restructuring talks now ingoing with international creditors and entering into an agreement on the US$12 billion debt re-work proposal, finance ministry official said.

The Government’s macroeconomic policy reforms are starting to bear fruit. Commendable outcomes include rapid disinflation, robust reserve accumulation, and initial signs of economic growth, while preserving stability of the financial system, he added.

Sri Lanka will be bringing its debt service levels below 30 percent of revenue. Public finances have strengthened following substantial fiscal reforms, and it is critical that this reform momentum be continued.

The debt deals being negotiated with a group of bondholders steering committee have not been provided real debt cancellation or actual write offs of debt stock,

The rescheduling agreement reached so far with bondholders by Sri Lankan authorities suggest a loan repayment moratorium for its US$ 12 billion bilateral debts until 2028.

A 30 percent haircut on dollar-denominated bonds, including international sovereign bonds among the major clauses included in the new debt restructure proposal. It was rejected during first round of talks in London.

Sri Lanka has submitted a new restructuring proposal to dollar bondholders through its adviser Lazard as the island nation seeks to complete revamping its defaulted debt, according to finance ministry official in London familiar with the negotiations with IMF.

The deals with bondholders may include contingency clauses to increase payments to them if/when the country reaches positive economic results

These contingency clauses ensure more benefits for the private creditors if the country does well, but they do not include reduced payments if there is a negative shock

The government plans to replace current US dollar denominated ISBs with new ones in the same currency.

The outstanding value of these ISBs amounts to $12.1 billion, a significant portion of the $22 billion external debt slated for restructuring.

Sri Lanka’s external debt stock stood at US$ 37.3 billion as of December 2023, bilateral debt at US$ 10.8 billion, multilateral debt at US$ 10.84 billion, and commercial loans at US$ 14.74 billion Banks have been invited to submit proposals to be considered for the role of Dealer Manager, collaborating with financial and legal advisors Lazard Frères SAS and Clifford Chance LLP.

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