US Backs Sri Lanka’s Debt Restructuring Milestone

COLOMBO (News 1st); The United States had welcomed the news of a final agreement on debt restructuring between Sri Lanka and creditor nations, reached today on the sidelines of the Paris Forum 2024.  US Ambassdor to Sri Lanka Julie Ching said that 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 U.S encourages Sri Lanka to continue the reform process, adopting transparent and sustainable changes that foster long-term prosperity and growth, she added.

Sri Lanka successfully finalized comprehensive debt restructuring agreements with key bilateral creditors. On June 26, 2024, Sri Lanka concluded negotiations with the Official Creditor Committee (OCC) and China Exim Bank, marking pivotal strides towards stabilizing its financial footing amid recent economic challenges.

The agreements, valued at a combined USD 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.

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 stabilization 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," commented a senior government official.

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 finalized. 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 finalizing 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.

Source: President’s Media Division (PMD)