Sri Lanka's Finance Ministry says Debt Payments Are Ongoing Despite Moratorium

COLOMBO (News 1st); The Ministry of Finance, Economic Stabilization, and National Policies has issued a clarification regarding Sri Lanka's external debt service payments, addressing widespread misconceptions about the country's economic stabilization efforts.

In a statement released on September 12, 2024, the Ministry emphasized that the prevailing economic stability is not solely due to the suspension of external debt payments. 

Contrary to popular belief, Sri Lanka has continued to service its multilateral debt even after the temporary moratorium on selected external debt service was announced in April 2022. This moratorium applied specifically to external commercial debt and official bilateral debt, while multilateral debt servicing remained uninterrupted.

The Ministry highlighted that in 2022 and 2023, Sri Lanka made debt service payments amounting to USD 2,483 million and USD 2,589 million, respectively. These payments represent approximately half of the usual annual debt service payments prior to the moratorium.

The Ministry's statement aims to correct the narrative that economic stability will falter once debt servicing resumes. 

It underscores the importance of ongoing macroeconomic reforms as the true drivers of stabilization, rather than the temporary suspension of debt payments.

The Finance Ministry said that Sri Lanka has already concluded debt restructuring agreements with the official sectors and is in advanced stages of negotiations with external commercial creditors. 

These agreements are expected to provide Sri Lanka with significant debt relief, and create the space required for the country to resume debt service obligations in a manner that does not disrupt economic stability in the future as well.

However, it added that it is essential that Sri Lanka uses this time and space to diligently rebuild its fiscal and external buffers. 

It warned that if the country fails to do so, then a return to instability is possible.