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On Friday, Sri Lankan authorities and international creditors held talks to lay out plans to repair the crisis-hit island nation’s worst economic emergency in seven decades and commence the country’s debt restructuring process. The two sides also discussed the multi-billion-dollar International Monetary Fund (IMF) bailout, which hangs on the Sri Lanka debt restructuring plan.
The success of the debt restructuring process is crucial for Sri Lanka, a small nation of 22 million people, for securing the $2.9 bn loan from the IMF as well as consequent financing from other global agencies.
Fresh credit will help Sri Lanka to control severe food, fuel and fertilizer shortages that have triggered widespread street protests this year. The economic crisis and the violent protests led several ministers of the Gotabaya Rajapaksa government to resign while President Rajapaksa himself fled the country.
Sri Lanka’s outgoing Finance Minister Ali Sabry told the parliament on Thursday, “Finding a solution to the financial crisis requires political stability. We need to have talks with the World Bank and have a bridge loan plan with ADB. If we are not stable, who will conduct these talks?”
Sri Lanka debt restructuring plan
The country’s finance ministry and other officials now plan to hold a virtual meeting with lenders to share the next steps regarding the Sri Lanka debt restructuring plan as well as discuss the objectives of the IMF loan package that were discussed on September 1.
Sri Lanka will make a public presentation on the debt restructuring plan and the IMF bailout plan after the online interactions with its creditors. Earlier this month, the Sri Lankan government held preliminary debt restructuring talks with neighbour India and diplomats from Japan and China based out of Colombo. “The meeting with ambassadors chaired by President Ranil Wickremesinghe on Thursday was very positive,” an official from the President’s office said.
At the end of 2021, Sri Lanka’s total foreign currency debt was $47.3 bn, while its local-currency debt stood at $53.6 bn, as per data released by the country’s Ministry of Finance in August. India, China and Japan are the country’s top bilateral creditors. Additionally, asset management firms such as BlackRock and Ashmore are owed some $13 bn in international sovereign bonds, a part of the foreign currency debt of the country.
Sri Lanka’s economy shrank 8.4% during the second quarter that ended July 31, 2022, representing one of the sharpest declines seen in a three-month period, compared to the same period in 2021. Citizens of the country have been struggling to pay for essential items including food, medicines, fuel and fertilizers, owing to a severe shortage of dollars that emerged from economic mismanagement and the effects of the Covid-19 pandemic.
As per data released by Sri Lanka’s Census and Statistics Department, agriculture and industries shrank 8.4% and 10% in the second quarter of 2022, while services declined 2.2%, compared to the previous year.
