Sri Lanka's Debt Restructuring Was Faster With Improved Creditor Coordination - IMF

COLOMBO (News 1st); The International Monetary Fund says it is seeing progress in accelerating debt restructuring for emerging market countries outside of the Common Framework. It adds that the Common Framework has started to deliver.

The Common Framework, which brings creditor countries together to help restructure debt where needed, has started to deliver by reducing the time from IMF staff level agreement – a key step toward an IMF program – to delivering the financing assurances from official creditors required for program approval.

Ghana’s agreement this year took five months to cover those steps, roughly half the time it took for Chad in 2021 and Zambia in 2022. Ethiopia’s talks are likely to be faster, closer to the customary two or three months.

A blog by IMF's Ceyla Pazarbasioglu reported that Sri Lanka’s case was faster than the process for Suriname that preceded it in 2021, reflecting improvements in creditor coordination and improved understanding of safeguards and assurances.

On the 26th of June 2024, Sri Lanka reached final agreement on its debt treatment with the members of the Official Creditor Committee (OCC) of Sri Lanka’s major bilateral lenders, and also Bilateral Debt Treatment Agreements in relation to the loans owed by Sri Lanka to Exim Bank of China.

Accordingly, through these two sets of agreements reached on the 26th of June, 2024, Sri Lanka has successfully concluded the treatment of its debt with its major official bilateral creditors, including China, and the OCC members; Japan, India, France, Australia, Austria, Belgium, Canada,Denmark, Germany, Hungary, Korea, the Netherlands, Russia, Spain, Sweden, United Kingdom and the United States of America.

This amounts to a total of USD 10 billion agreed to be treated by these lenders.

According to Sri Lanka's Finance Ministry, the final restructuring agreement with the OCC reflected in the OCC Memorandum of Understanding signed on 26th January 2024 will be translated into individual bilateral agreements with each member of the OCC.

Similarly, domestic regulatory formalities will be concluded by Sri Lanka and Exim Bank of China to give effect to the Amendment Agreements.

This will enable the official restructuring to be implemented. The successful implementation of the restructuring agreements with official creditors will provide an impetus to the negotiations with commercial creditors.

It added that Sri Lanka continues to engage with its bondholders and their advisers which is expected to yield a restructuring agreement that meets the DSA targets and is comparable to the agreements reached with the OCC and Exim Bank of China.

As of now, the domestic debt restructuring has been completed, the official restructuring agreements have been concluded, leaving only the external commercial debt restructuring to be concluded for the overall debt restructuring process to be finalized.