In a bid to address the substantial challenge of restructuring $12 billion in overseas debt, Sri Lanka’s private creditors have put forth a comprehensive proposal. This proposal includes the introduction of a novel bond type designed to facilitate repayments in the event of future economic pressures, as revealed by two undisclosed sources familiar with the matter.

Sri Lanka, with its population of 22 million, experienced its inaugural foreign debt default in May 2022, triggered by a severe shortage of foreign currency, leading to the nation’s most severe financial crisis since gaining independence from Britain in 1948.

The proposal, transmitted on October 2, envisions a write-down (haircut) on both the principal amount and interest, according to the anonymous sources, who opted to remain unnamed due to the confidentiality of the negotiations. Furthermore, it introduces the issuance of regular sovereign bonds and a unique financial instrument known as Macro Linked Bonds (MLBs). These MLBs will automatically reduce coupon payments, commencing in 2027, should Sri Lanka fail to meet specific economic targets linked to its International Monetary Fund (IMF) program.

At present, there has been no response from government representatives, nor from the creditor committee’s spokesperson regarding the proposal.

The comprehensive proposal incorporates two distinct options for creditors, with one combining MLB notes with regular bonds, and the other featuring regular bonds coupled with a Value Recovery Instrument (VRI), according to one of the sources.

The inclusion of MLBs is aimed at ensuring eligibility for indexing, a feature that typically enhances liquidity for the instruments. This proposal holds significant weight for Sri Lanka, which, as per the terms of a $2.9 billion IMF bailout secured in March, must secure debt restructuring assurances from bondholders and major bilateral lenders, including China, Japan, and India.

Notably, the proposal introduces the concept of step-down bonds, with the MLBs’ step-down payments linked to indicators such as Sri Lanka’s gross financing needs (GFN) to gross domestic product (GDP) ratio and debt to GDP ratio. For instance, if the GFN/GDP ratio surpasses 4.5% in 2027, coupon rates will automatically decrease.

Crucially, this debt restructuring proposal aligns with the parameters outlined in the debt sustainability analysis produced by the IMF as part of the economic program.

The proposal has also been shared with the IMF and the Paris Club secretariat. It marks a groundbreaking approach to debt restructuring, as step-down bonds have not been previously used in such contexts.

As discussions between bondholders and the government continue, facilitated by financial and legal advisors, trading of the country’s securities remains unrestricted.

In a significant development, the portfolio of the Minister of Environment has now been placed under the direct purview of President Ranil Wickremesinghe. This decision was officially announced through a Gazette Extraordinary released on October 12, 2023, and it was issued by Presidential Secretary Saman Ekanayake.

The decision-making process leading to this change involved consultations with Prime Minister Dinesh Gunawardena, in accordance with Article 44(3) of the Constitution, as stated in the official communique.

1. Committee on Public Accounts instructs Excise Dept to dispense with its current system of imposing lenient penalties for large-scale fraud and irregularities connected to the production of liquor: advises the Dept to mete out severe punishment such as cancellation of licences of firms that continue to be involved in the counterfeit sticker racket & non-payment of tax.
2. Govt Radiologists say Teaching Hospitals at Anuradhapura & Karapitiya have 18-month-long waiting lists for MRI scans: Lady Ridgeway Hospital for Children has a waiting list of 1 year for MRI scans.
3. Hearing of petitions filed by Ministers Manusha Nanayakkara & Harin Fernando challenging the decision taken by the SJB to oust them from the Party and disqualify them of their Parliamentary seats, commences before the Supreme Court.
4. Ministry of Finance announces that SL has reached “an agreement on the key principles and indicative terms of a debt treatment with China Exim Bank”: also says that, “in principle”, the agreement covers approximately USD 4.2 bn of outstanding debt: no further details disclosed: previously, the IMF had stated that it is unaware of any such agreement.
5. Supreme Court orders all state universities in the country to submit a report before 10 November’23 on all reported incidents of ragging at state universities and the measures taken to prevent ragging during the last 3 years.
6. Business tycoon and MP Dhammika Perera who recently announced that he would contest the Presidency from the SLPP, says SL does not have any system, although there is a clamour for a “system change”: also says a system change should start with the education sector: celebrates the 4th anniversary of his “DP Education Online Education System”.
7. Speculation mounts that moves are underway to abolish the Executive Presidency before the Presidential Election next year on the grounds that “no candidate or political party will be able to secure an over 50% win at the polls”: reports also emerge that discussions to this effect have already been held by President Ranil Wickremesinghe, and that Justice Minister Wijeyadasa Rajapakshe has already drafted a cabinet paper to change the electoral system.
8. The 11th Edition of the Galle Dialogue International Maritime Conference organised by the SL Navy in partnership with the Ministry of Defence and Geopolitical Cartographer starts in Galle: inaugural ceremony held under the patronage of President Ranil Wickremesinghe.
9. Aviation Minister Nimal Siripala de Silva says the Govt has engaged an international consultant to “bring valuable insights and best practices to guide the restructuring efforts of SriLankan Airlines”: the decision to hire the Consultant also expected “to maintain transparency”.
10. President Ranil Wickremesinghe directs Govt officials to prioritize immediate requirements of SL citizens in Israel, especially their safety, in the light of the ongoing conflict between Israel & Hamas.

A crucial meeting is scheduled for today (13) between the Government Medical Officers’ Association (GMOA) and President Ranil Wickremesinghe. GMOA Spokesman Dr. Chamil Wijesinghe announced that the discussion will take place at 3 pm at the President’s Office.

The meeting’s primary focus will be on pressing issues within the healthcare sector, such as the ongoing shortage of medicines and the concerning trend of doctors leaving the country for various reasons.

Dr. Wijesinghe revealed that the GMOA had launched a series of protests in response to the Ministry of Health’s failure to address these issues and provide adequate protection for doctors. He emphasized that the Health Minister would not be granted additional time to resolve these critical concerns, as solutions have already been proposed, and now it’s time for implementation.

The Central Committee of the party has decided that no changes should be made in the existing positions of the United National Party.

That was when the UNP Central Committee met yesterday (12) under the chairmanship of President Ranil Wickramasinghe.

A proposal to appoint Ravi Karunanayake for the post of General Secretary of the party has been discussed in the Central Committee, but the seniors of the party are of the opinion that no change should be made in the current positions.

Also, it was previously proposed to abolish all other positions except the chairman and general secretary positions of the party and appoint a leadership board, but the party central committee has decided that there is no need to implement that proposal.

It is stated that the Central Committee has decided that the current leaders are working very diligently to move the UNP forward little by little and that they have the ability to continue the future work as well.

Showers or thundershowers will occur over most parts of the island during the afternoon or night.

Fairly heavy showers above 75 mm can be expected at some places in Uva, Central and Easten provinces.

A few showers may occur in coastal areas of the western and southern provinces during the morning too.

Misty conditions can be expected at some places in Central, Sabaragamuwa and Uva provinces during the morning.

The general public is kindly requested to take adequate precautions to minimize damages caused by temporary localized strong winds and lightning during thundershowers.

Colombo (LNW): The Colombo High Court today (12) sentenced nine Iranians to life imprisonment over the possession and trafficking of narcotics off the Sri Lankan coast four years ago.

In 2019, the Iranian nationals were apprehended on their fishing vessel with more than 100 kg of heroin, valued at over Rs. 1 billion. Subsequent reports at the time had claimed that an additional 500 kg of heroin had also been discarded in the ocean.

High Court Judge Amal Ranaraja delivered the life sentences after the accused admitted their guilt before the start of the evidentiary hearing on the matter today.

Furthermore, the High Court Judge decreed that the convicts should be extradited to Iran to serve their sentences, in compliance with the international treaty signed by Sri Lanka.

This verdict was produced after the defence solicitors confirmed that all the defendants had accepted the charges against them.

Colombo (LNW): The Supreme Court today (12) commenced hearing a Fundamental Rights (FR) petition by Ministers Manusha Nanayakkara and Harin Fernando, over the decision by the Samagi Jana Balawegaya (SJB) to oust them from the Party for joining the government.

Justices Vijith Malalgoda, Achala Vengappuli and Arjuna Obeysekera presided over the proceedings.

Representing Minister Nanayakkara, Faiszer Musthapha PC argued to the judges that the primary opposition’s choice to suspend his client’s party membership was wholly unlawful.

According to the party’s constitution, he pointed out that only the Working Committee holds the authority to remove party members. He highlighted that neither the Party Leadership nor the Disciplinary Committee possess such powers.

The Disciplinary Committee’s sole responsibility is to bring charges against and investigate members who breach the party’s constitution, Musthapha emphasised.

He noted that despite Nanayakkara securing an injunction from the district court against a membership suspension, he was still dismissed from the SJB based on a notice from its general secretary.

Furthermore, Musthapha argued that the Supreme Court’s previous ruling supporting the Sri Lanka Muslim Congress’ (SLMC) choice to remove Minister Naseer Ahamed from the party does not apply to this situation.

The next hearing of the petition, which cites Opposition Leader Sajith Premadasa and SJB’s General Secretary Ranjith Madduma Bandara as respondents, has been scheduled for October 24, 2023.