Economy

Sri Lanka inks debt deal with creditor nations, including China

By Uditha Jayasinghe

COLOMBO (Reuters) -Sri Lanka on Wednesday signed agreements with creditor nations, including China, to restructure about $10 billion in bilateral debt, in a major step towards stabilising its crisis-hit economy.

The move brings Sri Lanka closer to finalising a debt restructuring process, which was kicked off in September 2022 after its reserves hit their lowest levels and forced the island nation to default on its foreign debt for the first time in history.

The deals will allow Sri Lanka to move forward with a $2.9 billion programme with the International Monetary Fund (IMF) that is aimed at helping the island nation recover from its financial crisis.

Sri Lankan officials in Paris inked the agreement with the Official Creditor Committee (OCC), which has 17 countries that have lent a combined $5.8 billion to the nation and is co-chaired by Japan, India and France.

“This agreement grants significant debt relief, allowing Sri Lanka to allocate funds to essential public services & secure concessional financing for its development needs,” the president’s media office said in a statement.

The country also signed a separate agreement to restructure $4.2 billion in debt from China EXIM Bank in Colombo, it added.

The island nation, however, still needs to convince bondholders to restructure about $12.5 billion in international bonds.

Sri Lanka’s dollar-denominated bonds slipped as much as 0.4 cents to trade around 60 cents, Tradeweb data showed.

However, its international bonds have rallied over the past two months, adding around 5 cents, with a few trading at their strongest levels since late 2021.

President Ranil Wickremesinghe is scheduled to address the nation later in the day and is expected to give more updates on Sri Lanka’s economy, his office said.

Japan, which has backed the swift implementation of debt restructuring to underpin Sri Lanka’s economic recovery, emphasized the importance of comparable treatment by non-OCC official bilateral creditors and private creditors in the latest Paris Club annual report.

“For future cases, we should encourage all official bilateral creditors to be a member of an OCC to achieve comparable treatment in a transparent and swift manner,” said Daiho Fujii, deputy vice minister for international affairs at Japan’s Ministry of Finance.

(Reporting by Uditha Jayasinghe and Karin Strohecker in London; editing by Sudipto Ganguly and Anil D’Silva)

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