Sri Lankan Central Bank moots recast of pension funds, haircut on bonds

Subject : International Relations

Section: International Organization

Concept :

Sri Lanka’s Central Bank has proposed restructuring the beleaguered nation’s debt by recasting the outgo on the country’s pension funds and offering international sovereign bondholders a repayment plan that entails a 30% haircut.

Debt Situation in Sri Lanka

The government’s latest move is part of its efforts to restructure both its foreign and domestic debt, in line with the expectations of the International Monetary Fund (IMF) that extended a nearly-$3 billion External Fund Facility in the wake of Sri Lanka’s painful economic crash last year.
As of March 2023, the crisis-hit country’s foreign and domestic debt were estimated at about $41.5 billion and $42.1 billion, respectively.
Key bilateral creditors, India and Japan, along with the Paris Club group of creditors, have set up a common platform to jointly evolve a debt restructuring plan for Sri Lanka, based on the principle of creditor parity.
All eyes are on China, Sri Lanka’s largest bilateral creditor, which is yet to officially join in the process and remains an observer, although Beijing has assured Colombo of cooperation.
Meanwhile, Mr. Weerasinghe said Sri Lanka would ask its private creditors, holding International Sovereign Bonds and the largest chunk of the island nation’s foreign debt, to take a 30% haircut.

Paris Club

The Paris Club is a group of mostly western creditor countries that grew from a 1956 meeting in which Argentina agreed to meet its public creditors in Paris.
It describes itself as a forum where official creditors meet to solve payment difficulties faced by debtor countries.
Their objective is to find sustainable debt-relief solutions for countries that are unable to repay their bilateral loans.
Members:
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Japan, Netherlands, Norway, Russia, South Korea, Spain, Sweden, Switzerland, the United Kingdom and the United States.
All 22 are members of the group called Organisation for Economic Co-operation and Development (OECD).