A Look At Sri Lanka's Official, External, Other Creditor Status

COLOMBO (News 1st); Sri Lanka's debt is owed to three distinct entities.

They are Official bilateral creditors, the external commercial creditors, and other creditors.

The Official Bilateral Creditors are China Exim Bank, the Committee of Official Creditors, and various other bilateral creditors.

External commercial creditors, encompass foreign entities holding international sovereign bonds, domestic creditors, and the China Development Bank.

Other creditors, include loans taken by government banks and government enterprises.

Given the cessation of debt payments, it is crucial to initiate restructuring and repayment strategies promptly.

What is the current status regarding the official bilateral creditors?

On October 11th 2023, the Chinese Exim Bank confirmed its acceptance of the terms regarding the $4.2 billion loan.

It is anticipated that the debt restructuring process will be concluded by the first quarter of this year following the finalization of the agreement.

On May 9, 2023, the Official Creditors' Committee was established with India, Japan, and France serving as co-chairs.

The Official Creditors Committee announced a consensus on debt restructuring totaling $5.9 billion on October 29th last year.

In line with this, there are current plans to formalize Memorandums of Understanding (MoUs) and establish bilateral agreements within the first quarter of this year.

Other bilateral creditors, such as Saudi Arabia, Kuwait, Iran, and Pakistan, confirmed in January of this year their intention to adhere to the debt restructuring framework outlined by the Official Creditors' Committee.

What is the current status of external commercial credit?

The holders of international sovereign bonds have recently presented a proposal, which the government believes diverges from the objectives outlined by the International Monetary Fund (IMF).

The government is concerned that implementing this proposal could precipitate another foreign exchange crisis and potentially disrupt agreements with other external creditors.

Consequently, the government is engaging with the International Monetary Fund (IMF) to formulate a new agreement with international sovereign bond holders.

This process is anticipated to culminate in an agreement by the conclusion of the first quarter of this year, with the government aiming for implementation by the second quarter.

Similarly, negotiations are underway to finalize an agreement with local creditors who have invested in sovereign bonds, with the government targeting agreement before the close of the first quarter and implementation in the second quarter.

Additionally, discussions to settle international sovereign bonds acquired through the China Development Bank are slated to conclude within the first quarter of this year.

The Sri Lankan Rupee

Meanwhile, the Sri Lankan rupee has exhibited resilience, appreciating by more than 6 percent against the US dollar since the start of the year.

Presently, the selling price of one US dollar stands at 308 rupees and 80 cents, compared to 328 rupees and 77 cents at the beginning of the year, marking a decrease of approximately 20 rupees in the cost to purchase a dollar.

Economic analysts attribute this strengthening of the rupee to an influx of dollars into the country, driven in part by a surge in tourism earnings, which have increased by 118 percent in the first two months of this year compared to the same period last year.

Additionally, remittances from Sri Lankans working abroad have risen by 14 percent during the same period.

Furthermore, Sri Lanka continues to bolster its foreign reserves through international loans.

Just this week, the country secured approval for $100 million from the Asian Development Bank and 1600 million Japanese yen.

As a result of these developments, Sri Lanka's foreign reserves have swelled to $4.5 billion.