US Ambassador hails Sri Lanka wrapping up bilateral debt with creditor nations

US Ambassador Julie Chung yesterday welcomed the news of a final agreement on debt restructuring between Sri Lanka and creditor nations on the side lines of the Paris Forum 2024.

In a post via ‘X’ she noted: “This is a positive step forward in Sri Lanka’s economic recovery and resilience, helping build more confidence in Sri Lanka’s fiscal environment. The US encourages Sri Lanka to continue the reform process, adopting transparent and sustainable changes that foster long-term prosperity and growth.”

Harsha welcomes bilateral debt deal, awaits details

Main opposition party Samagi Jana Balawegaya (SJB) MP Dr.Harsha de Silva yesterday expressed his satisfaction over Sri Lanka’s successful conclusion of bilateral debt restructuring with the Official Creditor Committee (OCC) and China Exim Bank.

In a post on ‘X’ Dr. de Silva highlighted the SJB’s consistent advocacy for collaboration with creditor nations during their engagements. 

“Thank you Japan, China, India. SJB appreciates your support to get Sri Lanka out of the hole they put us in. In our discussions you told us it is not politics, but people. As ‘people’s opposition’ we appreciate your kind gestures. Look forward to strengthening relationships,” he added.

The SJB have been vocal about the need for substantial cooperation from creditor countries to navigate the country’s debt crisis. “We hope the deal is a good one. Awaiting details. However, we are not in agreement with the ‘April ISB proposal’. Need a bigger haircut,” he stated, signalling a cautious optimism about the outcome.

His comments reflect the party’s ongoing scrutiny and constructive criticism of the Government’s debt restructuring strategies, particularly concerning the International Sovereign Bonds (ISB).

Sri Lankan Ambassador to the People’s Republic of China Majintha Jayesinghe
signing the agreements at the Embassy of Sri Lanka, in China

Latest breakthrough in $ 10 b external debt restructuring a “critical milestone” says Treasury Secretary 

Treasury Secretary Mahinda Siriwardena yesterday described Sri Lanka reaching agreements with the Official Creditors Committee (OCC) and China EXIM Bank as a “critical milestone”, and said the Government is continuing the process to stabilise and promote long-term economic growth.

“Sri Lanka and its officially OCC formally signed the Memorandum of Understanding (MoU) on debt treatment today (26) on the sidelines of the Paris Forum, marking a historical day in taking decisive measures to improve the economy,” he noted via a post via ‘X’.

He added that the announcement of the final agreements for debt treatment with the OCC and China EXIM Bank is a critical milestone in Sri Lanka’s debt restructuring process. 

 “We should stay focused on implementing reforms while continuing remaining areas in this process to strengthen the economy,” Siriwardena added. 

The President’s Media Division said on June 26, 2024, Sri Lanka concluded negotiations with the Official Creditor Committee (OCC) and China Exim Bank, marking pivotal strides towards stabilising its financial footing amid recent economic challenges.

The agreements, valued at a combined $ 10 billion, encompass restructuring arrangements with major bilateral lenders under the auspices of the OCC, co-chaired by Japan, India, and France. Notable members of the committee include Australia, Austria, Belgium, Canada, Denmark, Germany, Hungary, Korea, the Netherlands, Russia, Spain, Sweden, the United Kingdom, and the United States of America.

PMD said during the recent economic downturn, Sri Lanka faced severe foreign exchange constraints, necessitating urgent measures to address its mounting external debt. Failure to restructure would have precluded Sri Lanka from accessing crucial IMF support, essential for economic recovery amidst unsustainable debt levels.

The IMF’s Debt Sustainability Analysis (DSA) guided the restructuring process, determining necessary debt relief measures to align with Sri Lanka’s fiscal recovery objectives. Each creditor, including the OCC and China Exim Bank, agreed to extend maturity periods, initiate capital grace periods, and reduce interest rates significantly. These measures collectively alleviate Sri Lanka›s near-term debt service obligations, freeing up resources for essential public expenditures crucial for economic stabilisation and growth.

«This restructuring provides up to 92% relief on debt service payments during the IMF program, offering substantial fiscal breathing room crucial for prioritizing public services and stimulating economic growth,» PMD quoted an unnamed senior Government official as saying.

It said beyond immediate fiscal benefits, the agreements pave the way for renewed bilateral financing opportunities, essential for resuming critical infrastructure projects. This infusion of foreign investment is anticipated to invigorate sectors such as construction, bolstering job creation and economic resilience.

Moreover, the successful restructuring sets the stage for potential improvements in Sri Lanka’s credit ratings once agreements with commercial bondholders are finalised. Enhanced credit ratings are expected to reduce the cost of foreign financing and facilitate easier access to international capital markets, fostering broader economic stability and growth.

«Looking ahead, Sri Lanka remains committed to finalising agreements with commercial bondholders swiftly, building on the momentum gained from these landmark restructuring deals. The concerted efforts underscore Sri Lanka’s determination to navigate complex financial challenges, positioning the nation for a sustainable and robust economic recovery, PMD added.⍐

Daily FT Thursday, 27 June 2024