Sri Lanka has pledged to finalize its long-delayed foreign debt restructuring by the end of December, in line with strict revenue targets set by the International Monetary Fund (IMF), ahead of the 2025 budget.
The island nation defaulted on its $46 billion external debt in April 2022, after depleting its foreign exchange reserves, which made it impossible to fund essential imports like food and fuel. Since then, Sri Lanka’s economy has started to recover, aided by an IMF rescue package and austerity reforms aimed at stabilizing the government’s finances.
Economic Development Deputy Minister Anil Jayantha Fernando revealed that the delay in debt restructuring had resulted in an additional $1.7 billion in accumulated interest. He expressed hope that the restructuring of bilateral debt and international sovereign bonds would be completed by December 31.
President Anura Kumara Dissanayake, who assumed office in September, confirmed that his government would present its first revenue and expenditure proposals for next year in February. Last month, Dissanayake reaffirmed his commitment to honoring a deal secured by his predecessor to restructure $12.55 billion in international sovereign bonds, a key requirement to maintain the $2.9 billion IMF bailout loan.
Despite agreements being reached with a majority of private creditors in September to take a 27% reduction in their loans, final agreements have not yet been signed. This step is crucial for Sri Lanka to return to international financial markets and raise new loans.
Dissanayake's National People’s Power (NPP) coalition had initially criticized the restructuring deal, calling it unfair to the impoverished nation. However, following their victory in snap parliamentary elections last month, Dissanayake reversed his stance, acknowledging that altering the deal could jeopardize the fragile economic recovery.
As part of the deal ratified by the new administration, bondholders will also accept an 11% reduction on overdue interest payments. Sri Lanka secured its IMF bailout in 2023 after implementing significant tax hikes, withdrawing energy subsidies, and raising prices of essential goods to bolster state revenue.
The island nation defaulted on its $46 billion external debt in April 2022, after depleting its foreign exchange reserves, which made it impossible to fund essential imports like food and fuel. Since then, Sri Lanka’s economy has started to recover, aided by an IMF rescue package and austerity reforms aimed at stabilizing the government’s finances.
Economic Development Deputy Minister Anil Jayantha Fernando revealed that the delay in debt restructuring had resulted in an additional $1.7 billion in accumulated interest. He expressed hope that the restructuring of bilateral debt and international sovereign bonds would be completed by December 31.
President Anura Kumara Dissanayake, who assumed office in September, confirmed that his government would present its first revenue and expenditure proposals for next year in February. Last month, Dissanayake reaffirmed his commitment to honoring a deal secured by his predecessor to restructure $12.55 billion in international sovereign bonds, a key requirement to maintain the $2.9 billion IMF bailout loan.
Despite agreements being reached with a majority of private creditors in September to take a 27% reduction in their loans, final agreements have not yet been signed. This step is crucial for Sri Lanka to return to international financial markets and raise new loans.
Dissanayake's National People’s Power (NPP) coalition had initially criticized the restructuring deal, calling it unfair to the impoverished nation. However, following their victory in snap parliamentary elections last month, Dissanayake reversed his stance, acknowledging that altering the deal could jeopardize the fragile economic recovery.
As part of the deal ratified by the new administration, bondholders will also accept an 11% reduction on overdue interest payments. Sri Lanka secured its IMF bailout in 2023 after implementing significant tax hikes, withdrawing energy subsidies, and raising prices of essential goods to bolster state revenue.
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