President Ranil Wickremesinghe had initially pledged that the restructuring would be finalised prior to the most recent disbursement of $336 million, however, discussions with creditors have not yet resulted in an agreement. “There is consensus on the substance of the financial and legal terms,” Peter Breuer, IMF Sri Lanka mission chief, informed journalists in Colombo. “It is procedural issues that need to be addressed, and we anticipate that this will occur imminently.”
In April 2022, Sri Lanka defaulted on its $46 billion external debt after the country exhausted its foreign exchange reserves, leaving it unable to finance even essential imports such as food, fuel, and medicine. Months of protests led to then-president Gotabaya Rajapaksa stepping down, following accusations of mismanaging the island nation into its worst-ever economic crisis.
His successor, Mr. Wickremesinghe, has since increased taxes and significantly reduced consumer subsidies in an attempt to rectify the government’s balance sheet. Sri Lanka is set to hold a presidential election later this year, and opposition parties have pledged to renegotiate the terms of the $2.9 billion IMF bailout loan.
Mr. Breuer stated that the IMF is open to hearing alternative proposals from rival political parties, but emphasised the necessity of adhering to the benchmarks established in the bailout agreement. “Sri Lanka has made good progress in terms of kick-starting the recovery, but the country is not yet out of the woods,” he said. “We are open to hearing different views on how these programme objectives can be achieved. These need to be realistic and achievable within the programme’s time frame.”
China is Sri Lanka’s largest single bilateral lender and holds approximately 10% of the island’s total foreign debt. In December, Beijing agreed “in principle” to restructure its portion of Sri Lanka’s debt, but neither side has provided further details of the agreement and a formal deal has yet to be struck.
According to treasury data, Sri Lanka’s annual debt servicing is officially estimated at $6 billion, with external debt, including government-guaranteed borrowings, standing at $41.5 billion at the end of 2023.
