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Sri Lanka to Save $5 Billion Following Restructuring of Bilateral Debt

Sri Lanka’s president, Ranil Wickremesinghe, announced on Tuesday that the country will save $5 billion due to the restructuring of its bilateral debt. Most of this debt is owed to China. The restructuring involves reducing interest rates and extending repayment schedules.

The country faced an economic crisis in 2022, leading to defaults on foreign borrowings and shortages of essential items such as food, fuel, and medicine. However, a recent deal has secured a moratorium on debt payments until 2028. This will extend the loan tenure by eight years and lower interest rates to an average of 2.1 percent.

While China, the largest creditor, did not agree to a reduction in their loans, the terms agreed upon will still benefit Sri Lanka. The restructuring measures are expected to result in a savings of $5 billion, according to President Wickremesinghe’s address to the parliament.

Sri Lanka’s loans from China have had high interest rates, reaching almost 8 percent, compared to loans from Japan, the second largest lender, which have rates below 1 percent. The country has reached separate deals with China and other bilateral creditors, including Japan, France, and India.

Data from the treasury shows that bilateral creditors account for 28.5 percent of Sri Lanka’s outstanding foreign debt, amounting to $37 billion, excluding government-guaranteed external loans. Out of the $10.58 billion borrowed from other countries, $4.66 billion is from China.

President Wickremesinghe also mentioned that they are working on restructuring an additional $14.7 billion of external commercial loans, which includes $2.18 billion from the China Development Bank.

The agreement between Sri Lanka and its creditors was praised by Japanese foreign minister Yoko Kamikawa, who met with Sri Lankan counterpart Ali Sabry in Tokyo. She mentioned that Japan is prepared to resume lending to existing yen-loan projects once they receive assurances of expeditious bilateral deal conclusion.

The economic crisis in 2022 resulted in public protests and the resignation of former President Gotabaya Rajapaksa. President Wickremesinghe took over when the nation was bankrupt and secured a $2.9 billion bailout from the International Monetary Fund (IMF). This debt restructuring is a condition of the IMF bailout.

Sources:
Sri Lanka to save $5bn after debt restructuring – President (link to source: https://www.zawya.com/mena/en/business/story/Sri_Lanka_to_save_5bn_after_debt_restructuring__President-SNG_229146875/)