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“Sri Lanka’s Ongoing Debt Restructuring: Recent Developments and Future Prospects”

In the pursuit of stabilizing its economic landscape, Sri Lanka has taken substantial strides in its debt restructuring efforts. IMF Director of Communications, Julie Kozack, highlighted the country’s next steps, emphasizing the conclusion of negotiations with external commercial creditors and the implementation of agreements with official creditors.

IMF’s First Review Success: The first review of Sri Lanka’s Extended Fund Facility (EFF) program was approved by the IMF Executive Board on December 12, 2023, with a disbursement of $337 million USD. During a recent press briefing in Washington, DC, Julie Kozack expressed satisfaction with the program’s performance, signified by the successful completion of the review. Currently, an IMF staff mission is in Sri Lanka, collaboratively working with the government to ensure continued progress towards program targets.

Official Creditor Committee Agreement-In-Principle: On November 29, 2023, an agreement in principle was reached between the Official Creditor Committee (OCC), co-chaired by India, Japan, and France, and Sri Lanka on Debt Restructuring. The OCC anticipates formalizing this agreement in the coming weeks through a Memorandum of Understanding with Sri Lankan authorities. The committee lauds Sri Lanka’s ongoing efforts in implementing necessary reforms for a sustainable future.

China Exim Bank Agreement-In-Principle: Sri Lanka and the Export-Import Bank of China (“China Exim Bank”) reached an agreement in principle on October 12, covering approximately USD 4.2 billion of outstanding debt. This key step towards long-term debt sustainability is expected to pave the way for prompt economic recovery. The Sri Lankan Government commends China Exim Bank’s continuous support, aligning with the goal of restoring public debt sustainability.

Ad-Hoc Creditor Committee’s Concerns: While the Official Creditor Group has made progress, the Ad Hoc Group of Bondholders expresses dismay over the lack of transparency. In a statement, the group notes the absence of information sharing on the terms of the agreement-in-principle, stressing the need for transparency to achieve fair and equitable debt treatment. Despite the group’s commitment to constructive engagement, substantive discussions between Sri Lanka and its private creditors are yet to materialize.

The journey towards Sri Lanka’s debt resolution continues, with stakeholders navigating negotiations and striving for transparent and equitable solutions. The Ad Hoc Group remains committed to reaching an agreement that addresses the challenges posed by Sri Lanka’s international bond debt.

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