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30-06-2023
COLOMBO: The Central Bank of Sri Lanka (CBSL) has unveiled a far-reaching domestic debt restructuring plan aimed at restoring stability in the crisis-hit country.
The move on Thursday comes as the government tries to meet the conditions of a $2.9bn International Monetary Fund (IMF) bailout agreed upon in March seen as crucial to the economic recovery of the island nation, which defaulted on its foreign debt for the first time last year.
The long-awaited restructuring is needed to help Sri Lanka reach the IMF program’s goal of reducing overall debt to 95 percent of gross domestic product (GDP) by 2032.
Last year, a foreign exchange crisis left the government unable to pay for imports of fuel, food, medicine and other essentials, leading to protests that brought about the removal of then-President Gotabaya Rajapaksa.
The plan “is not a choice but an inevitable course of action by the government given the fragile budgetary situation in Sri Lanka,” WA Wijewardena, former deputy governor of the country’s Central Bank, told media.
Under the domestic debt revamp, holders of locally issued dollar-denominated bonds such as Sri Lanka Development Bonds (SLDBs) will be given three options, according to CBSL Governor Nandalal Weerasinghe.
The first would be a treatment similar to investors in the country’s international sovereign bonds, a 30 percent principal haircut with a six-year maturity at a 4 percent interest rate.
The second will be similar treatment to that being proposed to bilateral dollar creditors: no principal haircut, with a 15-year maturity and a nine-year grace period at 1.5 percent interest rate.
The third will be to exchange their holdings for local currency-denominated instruments: no principal haircut with a 10-year maturity at the SLFR (Sri Lanka standing lending facility rate) + 1 percent interest rate.
Sri Lanka currently has $12.5bn in international sovereign bonds. It also has $11.3bn in bilateral loans. (Int’l News Desk)
