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Sri Lanka Nears Finalization of Debt Treatment Plan with India and Paris Club

Sources familiar with the negotiations indicate that Sri Lanka is close to finalizing a debt treatment plan with India and the Paris Club. The plan is likely to include a moratorium of up to six years and a reduced interest rate during the repayment period.

According to a Colombo-based source speaking to The Hindu on Thursday, discussions are at an advanced stage, with a formal agreement on the terms expected very soon. This follows a recent discussion among members of the Official Creditor Committee (OCC).

The OCC, consisting of 17 countries that have extended loans to Sri Lanka, was formed last year to facilitate debt restructuring negotiations. China, while not part of the platform, has been attending meetings as an observer. Colombo has reassured the OCC that it will negotiate repayment of Chinese loans on comparable terms.

Finalizing agreements with official creditors and reaching “in principle” agreements with key private creditors are deemed critical next steps in Sri Lanka’s economic recovery plan, as stated by the International Monetary Fund (IMF) on Thursday.

Since defaulting on its nearly US$50 billion external debt in April 2022, Sri Lanka has been engaging with its diverse lenders to work out a debt treatment plan compatible with its pace of recovery. While considerable progress has been made in negotiating deals with bilateral creditors, private creditors holding the largest chunk of Sri Lanka’s foreign debt remain a challenge.

In a positive development, Sri Lanka is moving closer to receiving the next installment of the International Monetary Fund’s (IMF) assistance. This is part of the US$3 billion package obtained last year to aid recovery from the unprecedented financial crash witnessed in 2022. Authorities have reached a staff-level agreement with the Fund on the second review of its four-year Extended Fund Facility (EFF) arrangement. Upon completion of the IMF Executive Board’s review, Sri Lanka would have access to about US$337 million, bringing the total IMF assistance received so far to US$1 billion, according to a statement from the Fund.

IMF officials, commending Sri Lankan authorities for making good progress in implementing an ambitious reform agenda, noted commendable outcomes in curtailing inflation, ensuring reserve accumulation, and strengthening public finances.

Source: The Hindu

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