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.

Sri Lankan President Anura Kumara Dissanayake on Friday (September 27, 2024) appointed Senior Deputy Inspector General Priyantha Weerasuriya as the acting police chief, replacing Deshabandu Tennakoon who was suspended by the Supreme Court in July.

The move comes after a three-member bench of the apex court issued an order that will remain in effect until the completion of hearings on nine fundamental rights petitions filed against Mr. Tennakoon.

Also read | A break from the past, a new beginning in Sri Lanka

Mr. Tennakoon’s suspension is linked to a 2011 incident where he was found guilty of violating an individual’s fundamental rights through torture while in custody. Despite the Supreme Court’s directive for disciplinary action, Tennakoon was appointed police chief by former President Ranil Wickremesinghe in February, with approval from the Constitutional Council.

The Supreme Court on July 24 suspended Mr. Tennakoon from serving his office and suggested an acting appointment be made. However, Mr. Wickremesinghe’s government refused to act on the court order, citing it as an impediment to parliamentary powers.

Prior to his appointment as the acting police chief, Mr. Weerasuriya served as the Senior DIG in charge of the North Central Province, a position he has held since March 2024.

He has served in the police for 36 years and is the the first officer in the police’s 158-year history to rise from the rank of a Police Constable to IGP, according to EconomyNext news portal.

He is a law graduate from the University of Colombo and holds a Bachelor of Business Administration in Human Resource Management.

He had served as the Deputy Inspector General of Police (DIG) in charge of Crime and Traffic, as well as the Director of Police Logistics. He has also participated in United Nations peacekeeping missions in East Timor and Haiti.

This handout photograph taken on September 25, 2024, and released by Sri Lanka’s President Office shows the country’s newly elected President Anura Kumara Dissanayake, as he addresses the nation in Colombo. Sri Lanka’s new president called on September 25, for restarting talks with the IMF “immediately”
| Photo Credit: AFP

Sri Lanka will swiftly begin talks with the International Monetary Fund (IMF) to take its ongoing programme forward and expedite negotiations with its external creditors for debt relief, President Anura Kumara Dissanayake said.

The message, his first televised address to the nation, was aired Wednesday (September 25, 2024) evening.  “The change we seek involves many steps that will take time. However, achieving stability and confidence in the current economy is crucial,” Mr. Dissanayake said, days after he won a crucial national election held two years after the island nation went bankrupt.

Also read: Sri Lankan polls: economy takes centre stage | Explained

While sections have voiced concern over the leftist leader’s possible stance on the country’s ongoing IMF programme, Mr. Dissanayake’s address made clear — as did his poll manifesto — that his government, of the National People’s Power [NPP] alliance, would not steer away from the IMF-led course of economic recovery. All the same, the NPP has said it would renegotiate certain elements of the Fund’s package, especially its austerity measures that ordinary Sri Lankans are struggling to cope with, at a time when high living costs persist, and real incomes have fallen.

Reviewing its Sri Lanka programme in August, the IMF said Sri Lanka’s “knife-edged” recovery was at a critical juncture. “Sustaining the reform momentum and ensuring timely implementation of all program commitments are critical to cement the hard-won economic progress to date and put the economy on a firm footing,” it noted. Following Mr. Dissanayake’s victory in the September 21 presidential election, the Fund said it looked forward to working with his government.

Further, Mr. Dissanayake said in his address that the country needed a Parliament that “accurately reflects” the will of the people. “The existing Parliament does not represent that will. Therefore, I took the step yesterday to dissolve it. A Cabinet was appointed in line with our parliamentary representation,” he said. On Wednesday, Mr. Dissanayake also appointed new Governors to the island’s provinces, which are under Governors’ rule since the provincial councils have remained inactive for over five years.

China’s President Xi Jinping. File.
| Photo Credit: AP

Chinese President Xi Jinping on Monday (September 23, 2024) said he hoped to broaden cooperation with Sri Lanka under his Belt and Road infrastructure initiative (BRI) as he congratulated the island nation’s new leader Anura Kumara Dissanayake.

Mr. Dissanayake took his oath at the Presidential Secretariat in Colombo on Monday, vowing to restore public faith in politics.

The country is emerging from a years-long economic collapse blamed partly on struggling high-debt Chinese mega-projects coordinated through the BRI, the massive infrastructure project that is a central pillar of Mr. Xi’s bid to expand his country’s clout overseas.

“I attach great importance to the development of China-Sri Lanka relations and am willing to work with Mr. President to continue our traditional friendship [and] enhance mutual political trust,” Mr. Xi said in a message to Mr. Dissanayake, according to state broadcaster CCTV.

Mr. Xi said he hoped bilateral cooperation under his flagship BRI would “bear more fruit”, CCTV added.

He said Beijing would “promote the steady progress of sincere mutual assistance between China and Sri Lanka as well as our age-old strategic cooperative partnership, and create more benefits for the peoples of both countries”.

Western critics accuse China of using the BRI to enmesh developing nations in unsustainable debt to exert diplomatic leverage over them or even seize their assets.

But a chorus of leaders — as well as research by leading global think tanks like London’s Chatham House — have refuted the “debt trap” theory.

In December 2017, unable to repay a huge Chinese loan, Sri Lanka handed its Hambantota port in the south of the island to a Beijing company on a 99-year lease for $1.12 billion.

And the country defaulted on its foreign borrowings in 2022 during a crisis that caused months of food, fuel and medicine shortages.

China is the nation’s largest bilateral creditor, its loans accounting for $4.66 billion of the $10.58 billion that Sri Lanka has borrowed from other countries.

Last year, the International Monetary Fund — the international lender of last resort — approved a $2.9 billion bailout loan for Sri Lanka. Beijing also agreed to restructure its loans to the country.

And this month, Sri Lanka secured a deal with international bondholders to finalise a prolonged debt restructuring.