In a statement issued on Friday, Japan reiterated the critical importance of swiftly finalizing the Memorandum of Understanding (MoU) between Sri Lanka and creditor nations regarding debt restructuring. This comes after a preliminary agreement was reached late last year. The statement also underscores the necessity of ensuring transparency and comparability in agreements with creditors outside the Official Creditor Committee (OCC).
Japan, alongside France and India, holds the co-chair position in the committee consisting of 15 creditor nations. Sri Lanka, grappling with its most severe financial crisis since gaining independence in 1948, is actively working to restructure agreements with creditors. The economic downturn, marked by surging inflation, currency depreciation, and dwindling foreign reserves, led the nation to default on foreign debt in May 2022.
In November, both Sri Lanka and its creditors announced a tentative agreement on debt restructuring covering approximately $5.9 billion of outstanding public debt. The restructuring plan involves a combination of long-term maturity extension and a reduction in interest rates.
Notably, China, Sri Lanka’s largest bilateral creditor, has independently negotiated a separate agreement with the island nation but has not formalized its participation in the OCC.
As of September, Sri Lanka’s total external debt stands at an estimated $36.4 billion, including $10.81 billion in bilateral debt, as reported by its finance ministry. To successfully conclude the second review of a $2.9 billion bailout from the International Monetary Fund, Sri Lanka must secure debt restructuring agreements with both bilateral creditors and bondholders, potentially by March. Source – Reuters
