Sri Lanka secures debt deals with lenders for IMF bailout

Lotus tower in Colombo, Sri Lanka

Photo credits: unsplash

Sri Lanka has finalized long-overdue debt agreements with its bilateral lenders, including China, to meet a crucial requirement for an IMF bailout, the government announced on Tuesday (June 25).

A delegation from the treasury is heading to France to sign the agreements with creditors on Wednesday, according to government spokesman Bandula Gunawardana.

In April 2022, Sri Lanka defaulted on its foreign debt due to a shortage of foreign exchange, leading to a severe economic crisis that resulted in the resignation of then-president Gotabaya Rajapaksa.

The government had aimed to secure a debt deal with all its creditors by the end of 2022, but negotiations extended beyond that timeline.

Bilateral creditors represent 28.5 percent of Sri Lanka’s current foreign debt of $37 billion, based on treasury data from the end of March. China is the largest bilateral lender, holding $4.66 billion out of the total $10.58 billion borrowed from other countries. Japan follows with $2.35 billion, and India with $1.36 billion.

Sri Lanka’s commercial borrowings include $12.55 billion from International Sovereign Bonds (ISB) and $2.18 billion from the China Development Bank.

“Talks with ISB holders are still ongoing,” Gunawardana said, noting that the debt agreement with bilateral creditors marks a significant milestone for the country.

President Ranil Wickremesinghe is expected to reveal the details of the deal with official creditors in a speech to the nation on Wednesday evening.

While the cabinet of ministers has approved the terms of the agreements with creditors, Gunawardana did not provide specifics, indicating that the president would make those announcements.

Earlier this month, the International Monetary Fund provided Sri Lanka with a $336 million installment from a $2.9 billion rescue package aimed at restoring the country’s financial stability over four years.

Sri Lanka is set to hold a presidential election this year, with opposition parties promising to renegotiate the terms of the IMF bailout. IMF’s Sri Lanka mission chief, Peter Breuer, stated that they are open to considering alternative proposals from rival political parties but emphasized the importance of adhering to the bailout benchmarks.

Breuer acknowledged Sri Lanka’s progress but noted that the country still faces significant challenges.