During the two days of talks with the IMF authorities, President Anura Kumara Dissanayake reiterated Sri Lanka’s position that some of the rigid IMF conditions must be watered down to grant relief to the public.
| Photo Credit: AFP

The Sri Lankan government has announced a long-delayed debt restructuring agreement with its sovereign bondholders, in a major relief to the cash-strapped island nation.

In a statement on Friday (October 4, 2024), the Ministry of Finance said it reached an agreement with representatives of its international and local holders of International Sovereign Bonds (ISB) on September 19, 2024.

Sri Lankan authorities have “completed their consultations with Sri Lanka’s Official Creditor Committee (OCC) and the International Monetary Fund (IMF),” said the statement from the Treasury.

It added that the agreement is compatible with the comparative treatment principle.

The announcement came as the new National People’s Power (NPP) government led by President Anura Kumara Dissanayake expressed willingness to accept the agreement during the talks held with the visiting IMF delegation in Colombo on Thursday and Friday (October 3 and 4, 2024)

During the two days of talks, Mr. Dissanayake reiterated Sri Lanka’s position that some of the rigid IMF conditions must be watered down to grant relief to the public.

The IMF made external debt restructuring conditional to the $2.9 billion four-year facility clinched in March 2023 by the Ranil Wickremesinghe administration.

Sri Lanka has already obtained three tranches of about $360 million each under the Extended Fund Facility. The third tranche of the bailout package was released in mid-June as the Washington-headquartered global lender said on August 2, 2024, that Sri Lanka’s economic reform programme had yielded good results.

Days before the presidential elections, the then Mr. Wickremesinghe-led government, which undertook the laborious task of debt restructuring, announced an in-principle agreement with external commercial creditors for the restructuring of approximately $17.5 billion of external commercial debts.

Mr. Wickremesinghe, who was also the Finance Minister, was defeated in the presidential election last month.

The NPP in the run-up to the election had called the IMF deal a “death trap” and vowed to renegotiate it.

In April 2022, the island nation declared its first-ever sovereign default since gaining independence from Britain in 1948. The unprecedented financial crisis led Mr. Wickremesinghe’s predecessor Gotabaya Rajapaksa to quit office in 2022 amid civil unrest.

Anura Kumara Dissanayake takes oath as Sri Lanka’s new president during a ceremony, in Colombo, Sri Lanka. File
| Photo Credit: PTI

The new Sri Lankan government, during its first meeting with the International Monetary Fund (IMF), said it is committed to the global lender’s $2.9 billion bailout package clinched by the previous Ranil Wickremesinghe regime and hoped to renegotiate certain conditions.

The meeting between the IMF team and the Sri Lankan government on Wednesday (October 2, 2024) came two weeks after President Anura Kumara Dissanayake of the National People’s Power (NPP) was elected two weeks ago.

The government team was represented by its economic council members headed by Prof. A.J. Fernando, who was named as President Dissanayake’s economic and finance advisor only two days ago.

Sri Lanka to review sovereign bond restructure deal

On September 23, Mr. Dissanayake, the leader of the Marxist Janatha Vimukthi Peramuna party’s broader front, the NPP, was sworn in as Sri Lanka’s ninth President, amid hopes that he will bolster the country’s economy and eliminate corruption.

“The primary objective of the visit was to initiate discussions on the progress of the IMF Programme and necessary steps towards the release of the fourth tranche of the $2.9 billion Extended Fund Facility,” a statement from the President’s Media Division (PMD) said about the meeting.

Prof. Fernando told reporters that the talks were useful in exchanging ideas and said the NPP government would stay committed to the IMF’s $2.9 billion four-year facility clinched by the Ranil Wickremesinghe administration in March 2023.

The IMF has made external debt restructuring conditional to the $2.9 billion Extended Fund Facility (EFF). The third tranche of the bailout package was released in mid-June as the Washington-headquartered global lender said on August 2 that Sri Lanka’s economic reform programme had yielded good results.

Prof. Fernando said the NPP was keen to probe the possibility of suggesting alternative revenue-raising means for the state and that it would require further talks.

The NPP had been severely critical of the former President Ranil Wickremesinghe government’s IMF bailout package, which they described as “a death trap.” However, in the run up to the Presidential elections and in its manifesto, the party watered down criticism and mentioned its intention to renegotiate the conditions.

Prof. Fernando said the NPP government would stay committed to the IMF’s $2.9 billion four-year facility clinched by the Wickremesinghe administration in March 2023. The IMF team was headed by its Sri Lanka mission chief Peter Breuer.

Sri Lanka clinches $12.5 billion bond rework deal in pre-election dash

Sri Lanka has already obtained three tranches of about $360 million each. The third review for the release of the fourth tranche is expected to happen in Washington at the end of this month. NPP sources said Prof. Fernando would be part of the government delegation for the talks.

Prof. Fernando described the ongoing visit as a courtesy visit for the new Lanka team of negotiators to get familiar with the process and the personalities involved.

“The meeting reviewed the IMF programme thus far and outlined the way forward for future collaboration,” the PMD statement said, adding, “The IMF delegation expressed appreciation for the significant changes taking place in Sri Lanka, boosting the positive outlook on Sri Lanka under the present government.” “This meeting marks a crucial step in reinforcing Sri Lanka’s commitment to economic stability and securing continued support from the IMF,” it added.

In April 2022, the island nation declared its first-ever sovereign default since gaining Independence from Britain in 1948. The unprecedented financial crisis led President Ranil Wickremesinghe’s predecessor Gotabaya Rajapaksa to quit office in 2022 amid civil unrest.

Mr. Wickremesinghe negotiated the $2.9 billion bailout package with the IMF in March 2023 and days ahead of the Presidential voting, his government had announced that it has reached an in-principle agreement with external commercial creditors the restructuring of approximately $17.5 billion of external commercial debts.