Sri Lanka looks for USD 17 billion debt reduction from restructuring

Sri Lanka is looking at a reduction of approximately USD 17 billion from its overall debt burden in the ongoing debt restructuring process, Foreign Minister Ali Sabry said here on Wednesday and highlighted his government's efforts to foster strong ties with major partners and creditors, including China and India, for further negotiations with the IMF.

Sabry's statement comes days after the visiting Japanese Foreign Minister Yoko Kamikawa said Tokyo expected cash-strapped Sri Lanka to sign early MoUs with the official creditors to reach a “transparent and comparable” debt restructuring agreement with all the creditors.

Japan is leading the international discussions on Sri Lanka's debt restructuring as co-chair of the Official Creditors' Committee after the island nation, in April 2022, 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.

In March, the International Monetary Fund (IMF) said it has reached a staff-level agreement with Sri Lanka for the next phase that would enable it access to USD 337 million from the nearly USD 3 billion bailout approved in 2023 for the country.

Two tranches of USD 330 million each were released in March and December 2023 even as the global lender has praised Colombo for its macroeconomic policy reforms, which it said, “are starting to bear fruit.” 

Speaking with reporters here on Saturday, Sabry said that Sri Lanka is looking at a reduction of approximately USD 17 billion from its overall debt burden in the ongoing debt restructuring process. 

“This advantage may manifest in various forms, including reductions in principal amounts, interest payments, or extended repayment timelines. Such restructuring efforts hold the potential to alleviate our debt burden by USD 17 billion,” Sabry said.

The current debt restructuring negotiations revolve around USD 46 billion, mainly involving private bondholders. Simultaneously, these endeavours will pave the way for the continuation of developmental activities within the country at the earliest opportunity, he said, adding, that Prime Minister Dinesh Gunawardena's recent visit to China, where Sri Lanka signed nine MoUs with China, reflects the same.

He also expressed the government's expectations about concluding the foreign debt restructuring process by June. “The initial phase of domestic debt restructuring has been completed, with attention now turned to foreign debt restructuring. Negotiations with private investors linked to sovereign bonds aim to finalise this phase by June, with a targeted completion before June 2024,” the Minister added.

Dealing with the foreign policy outlook of the government, Sabry referred to the recent visit of the Japanese Foreign Minister and the visit of the Iranian President and emphasised Sri Lanka's adherence to a “non-aligned foreign policy” coupled with its commitment to maintaining relations with all nations while safeguarding its sovereignty.

Securing support from major partners and creditors, including the US, France, India and China, was pivotal during negotiations with the IMF. “We've made progress in debt restructuring, gaining the backing of the Official Creditor Committee and comprising nations like India, Japan and the Paris Club. Our aim is to conclude debt restructuring by the end of June, with the support of all major players. This includes finalising agreements with China,” he added.

Once debt restructuring is achieved, mainly the external debt restructuring, then India can focus on fostering economic growth through partnerships with various parties, the Ministry added.