Sri Lanka is poised to sign a significant debt restructuring agreement with a group of creditor nations on Wednesday, a crucial step in stabilizing the country’s finances following a severe economic crisis. President Ranil Wickremesinghe informed his cabinet about the debt restructuring on Monday, Foreign Minister Ali Sabry revealed in a phone interview.
The cabinet has approved the debt restructuring framework, according to Cabinet spokesman Bandula Gunawardana. However, details of the agreement were not disclosed.
The Paris Club is set to host the Paris Forum this Wednesday. This annual event in France brings together representatives from both creditor and debtor countries to discuss various debt issues.
Formal negotiations with international private creditors over more than $12 billion in bonds are expected to start this week in Paris. This follows the signing of non-disclosure agreements by a group of bondholders last week, sources told Reuters. These talks come in the wake of the International Monetary Fund (IMF) board approving a $336 million installment of its $2.9 billion program for Sri Lanka, with about $1 billion already disbursed.
The bondholders’ group, represented by major financial entities such as Amundi Asset Management, BlackRock, Eaton Vance Management, Grantham, Mayo, Van Otterloo & Co (GMO) LLC, HBK Capital Management, Morgan Stanley Investment Management, Neuberger Berman, T. Rowe Price Associates Inc, and Wellington Management, has yet to comment on the resumption of negotiations.
Sri Lanka had previously rejected an initial bondholder proposal in April, citing issues with the proposal’s baseline assessments and the absence of a contingency plan for continued economic weakness.
The country fell into its worst financial crisis in over seven decades in 2022, facing a severe dollar shortage that led to 70% inflation, a record low currency, and a 7.3% economic contraction. The IMF bailout secured in March last year has been instrumental in stabilizing the economic situation.
Sri Lanka is also preparing for presidential elections to be held by mid-October, adding another layer of significance to the ongoing financial reforms.
Based on reports on Reuters
