Sri Lanka ratifies $12.5 billion sovereign debt restructuring deal

Sri Lanka’s new government has announced that it has approved a $12.5 billion sovereign debt restructuring agreement signed with private creditors. The announcement came in a statement from the Finance Ministry, with Sri Lankan authorities confirming their approval of the in-principle agreement announced on September 19.

The move comes as Sri Lanka grapples with an unprecedented economic and financial crisis that hit the country in 2022, which led to it defaulting on $46 billion in external debt. The crisis has caused a severe shortage of foreign currency needed to finance essential imports such as food, fuel and medicine.

Last year, Sri Lanka received a $2.9 billion bailout from the International Monetary Fund, conditional on implementing strict austerity measures and restructuring the country’s debt. Ahead of the presidential elections on September 21, former President Ranil Wickremesinghe announced that his government had reached an agreement with creditors, including the China Development Bank, to restructure some of the debt. The agreement included a 27% write-off of debt owed to private sector creditors, in addition to an 11% reduction in interest accrued since Sri Lanka defaulted.

For his part, the new President Anura Kumara Dissanayaka expressed his desire to renegotiate some of the terms of the agreement with the International Monetary Fund, as he seeks to ease the tax burden and duties imposed on food and medicine commodities that directly affect the population. A delegation from the International Monetary Fund is scheduled to arrive in Sri Lanka next Wednesday to meet with the new government, with a new round of negotiations between the two parties starting later this month in the United States. The Sri Lankan government hopes that this agreement will contribute to improving the country’s economic situation and restoring confidence in international financial markets, giving it a better chance of recovering from the current crisis.