Sri Lanka reaches final debt restructuring agreement with creditors

Sri Lanka has reached a final restructuring agreement for USD 5.8 billion of debt with its bilateral lenders’ Official Creditor Committee in Paris, France a short while ago.

This agreement grants significant debt relief, allowing Sri Lanka to allocate funds to essential public services and secure concessional financing for its development needs, the President’s Media Division (PMD) said.

“We are pleased to announce that the final agreement has been reached on debt restructuring between Sri Lanka and the Official Creditor Committee on the sidelines of the Paris Forum 2024 in Paris, France,” Sri Lanka’s State Minister of Finance Shehan Semasinghe said.

“Today, we are also in the process of signing bilateral debt treatment agreements between Sri Lanka and Export Import Bank of China,” he said in a post on ‘X’.

On behalf of Sri Lanka, the state minister expressed gratitude to the OCC chairs - France, India, and Japan - as well as the Export Import Bank of China (EXIM) for their leadership in this process, as well as all OCC members for their “unwavering support.”

He also commended the OCC Secretariat for their dedication to finding a resolution to Sri Lanka’s debt crisis and to achieve this significant milestone, which he said will enhance confidence in the country’s economy and foster growth.

“I reiterate that the unwavering commitment and leadership of President Ranil Wickremesinghe have been instrumental in steering our nation towards this milestone achievement,” he added.

The Sri Lanka government was expected to sign a debt restructuring agreement with a group of creditor nations on Wednesday, in a major step to help stabilise the country’s finances following its economic crisis.

President Ranil Wickremesinghe updated his cabinet on the debt restructuring late on Monday, Foreign Minister Ali Sabry told Reuters by phone.

The cabinet also approved the debt restructuring framework, Cabinet spokesman Bandula Gunawardana told reporters yesterday, while declining to divulge details.

“Details of the agreement will be presented to parliament later to ensure transparency,” he said, during the Cabinet press briefing.

The deal will allow creditor nations to resume lending to Sri Lanka. The economy crashed in 2022 when a fall in foreign exchange reserves prompted the island to default on its foreign debt.

Sri Lanka’s bonds, were up 0.2-0.3 cents in late Asian trading, slightly outperforming most emerging markets and maintaining the more than 15% gains made since February.

Sri Lanka’s finance ministry said in November that the debt restructuring agreement in principle covered approximately $5.9 billion of outstanding public debt and involved a mix of extending the maturity of long-term borrowings and reducing interest rates on the credit.

The majority of the debt is owed to Japan and India, which chair the OCC along with France.
A provisional agreement with the OCC was reached in November.

Sri Lanka, which has roughly $37 billion in external debt, still needs to hammer out an agreement on $12.5 billion owed to private bondholders as well as a final deal with the Export-Import Bank of China on $4.2 billion in loans.

Aided by a $2.9 billion bailout package from the International Monetary Fund, Sri Lanka’s economy is expected to grow 3% in 2024 after two years of contraction.