Colombo, 1 December 2023 (TDI): Sri Lanka and the official creditor committee have struck an agreement on debt restructuring, paving the way for a $2.9 billion bailout installment from the International Monetary Fund (IMF).
According to a statement issued by the Paris Club, an Official Creditor Committee (OCC) co-chaired by India, Japan, France, and Sri Lanka agreed on the main criteria of a debt treatment in line with the Extended Fund Facility (EFF) arrangement between Sri Lanka and the IMF.
Under the agreement, the IMF staff will be able to present the first review of Sri Lanka’s EFF arrangement to the IMF Executive Board, paving the path for authorization for the second tranche of IMF financing of about US$ 334 million within the arrangement.
The OCC applauds Sri Lankan authorities for their ongoing efforts to achieve the changes required for their country to return to a sustainable trajectory.
In accordance with the Finance Ministry, the agreement in principle covers around $5.9 billion in existing public debt and comprises a combination of long-term maturity elongation and interest rate decrease.
The mutually agreed-up debt treatment conditions will be further specified and formalized in a Memorandum of Understanding between Sri Lanka and the OCC, mentioned in the statement.
After that, it will be implemented via bilateral agreements with each OCC member following their respective laws and regulations.
As per the Finance Ministry, the Sri Lankan government expects the negotiated provisions to be implemented as soon as possible.
This agreement in principle, along with the accord signed with the Exim Bank of China, goes a long way towards addressing Sri Lanka’s external bilateral restructuring of loans.
It further added that the next stage is to finalize similar deals with Sri Lanka’s other external creditors, which include Saudi Arabia, Pakistan, Kuwait, and Iran, totaling US$ 274 million in pending liabilities.
Sri Lanka’s Minister of Transport, Highways and Mass Media, Dr. Bandula Gunawardena hailed the international community’s support for the debt restructuring process saying that this achievement will revitalize stagnant projects in the country.
Last year, Sri Lanka experienced the most severe financial crisis in seven decades, as its foreign exchange reserves dropped to historic lows.
However, since accepting the $2.9 billion IMF bailout in March, the South Asian island nation has been able to partially stabilize its economy, bring down hyperinflation, and recover currency reserves.
With the IMF loan, Sri Lanka may receive further cash from the Asian Development Bank and the World Bank, increasing the total sum to roughly $900 million, according to central bank Governor P. Nandalal Weerasinghe last week.