Sri Lanka reaches crucial debt restructuring deal with international bondholders to restore economic stability

Colombo has reached a debt restructuring deal with the international sovereign bondholders after protracted negotiations, Sri Lankan finance minister Shehan Semasingher said on July 4. The minister termed it a “crucial step” in the cash-strapped country’s efforts to restore debt sustainability. 

“ISBs (International Sovereign Bonds) account for $12.5 billion out of the total external debt of $37 billion. This agreement is a crucial step in our efforts to restore debt sustainability,” Semasinghe said in a statement. He added that the agreement with private bondholders was subject to the approval by the official creditor committee of nations, including India. 

This marks another key milestone towards the island nation’s economic revival and strengthening, he said. 

Officials said the expected haircut agreed upon would amount to 28 percent, with an upfront payment to ISB holders commencing from September this year. They said that this process completes Sri Lanka’s debt restructuring process, which came as a prerequisite for debt sustainability in the ongoing International Monetary Fund (IMF) bailout of $2.9 billion extended in March 2023 over a period of four years. 

The move follows the finalisation of debt restructuring agreements with bilateral lenders, including India and China, in Paris on June 26, which President Ranil Wickremesinghe described as a “significant milestone” for bolstering international trust in the debt-ridden economy. 

Sri Lanka declared its first-ever sovereign default in mid-April 2022, having run out of its foreign exchange reserves. The halt to the debt services meant that the multilateral creditor nations and commercial lenders could not extend fresh financing to the country. 

The government faced criticism from the main Opposition after last week's announcement on bilateral debt restructuring, who claimed that the government had failed to achieve the best solution for the country.