Debt restructuring by Sri Lanka

Debt restructuring by Sri Lanka

Subject : Economy

Section: External sector

Key points:

• Sri Lanka (SL) initiated its domestic debt restructuring (DDR) process, one year after defaulting in servicing of its loans.
• IMFin March had extended a nearly $3 billion bailout facility over a period of four years to debt-ridden Sri Lanka to help stabilize its economy.
• As part of the DDR process, SL has announced a 5 day bank holiday. The plan will go to the public finance committee before being approved by the Parliament.
• The estimated debt of Sri Lanka is around $42 billion.

Negotiations with Creditors:

• Negotiations with bilateral creditors is on: 9 out of 17 countries have joined an “official creditor committee”, which is being co-chaired by India, Japan and France.
• The committee is considering Sri Lanks’s request for debt restructuring.
• The committee also includes the Paris Club (It is a group of major creditor countries who attempt to find a co-ordinated and sustainable solution to the payment difficulties experienced by debtor countries), but China (holds debt of around $7 billion) has chosen to remain an observer for now. China wants multilateral creditors to also join the same process.
• At present there is no clarity with respect to Private creditors, who hold the largest pie of debt in the form of Sovereign Bonds.
• Domestic debt restructuring may also be resorted to. This could take the form of longer tenure on deposits, reduced rates. This could have an adverse impact on people’s savings and pension.