After a financial crisis, Sri Lanka signs a partial debt agreement to recover.

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After a financial crisis, Sri Lanka signs a partial debt agreement to recover.

The nation defaulted on its foreign debt in 2022 after running out of foreign currency.

Sri Lanka said on Wednesday that it has reached a restructuring agreement with significant bilateral lenders that covered debt of up to $5.8 billion. This is a critical step in the country’s recovery from the financial catastrophe of 2022.
After a financial crisis, Sri Lanka signs a partial debt agreement to recover.
March 31, 2022, in Colombo, Sri Lanka, protestors move away from tear gas used by police during a demonstration against President Gotabaya Rajapaksa, as many parts of the crisis-hit nation went without electricity for up to 13 hours due to a lack of foreign currency to import fuel.

It is envisaged that the deal will enable Sri Lanka to get concessional finance for development and dedicate funding to vital public services.

After the nation ran out of foreign currency in April 2022, it defaulted on its foreign debt, and the then-president Gotabaya Rajapaksa was forced to resign due to an unparalleled economic crisis.

The South Asian island had achieved an agreement with its creditors, according to a statement released by President Ranil Wickremesinghe’s office on Wednesday.

Without providing any other information, the announcement stated that “Sri Lanka reached a final restructuring agreement for $5.8 billion of debt with its bilateral lenders’ Official Creditor Committee (OCC) in Paris, France.”

Japan, India, and France are members of the Paris-based OCC.

Although not a member, Colombo hopes to reach a similar agreement with Beijing, according to Sri Lankan officials participating in the negotiations. China is the country’s largest single bilateral lender.

The agreement is a prerequisite for receiving a bailout from the IMF.

The IMF gave the most recent installment of $336 million of a $2.9 billion bailout package earlier this month. The goal of the program was to assist rebuild Colombo’s damaged finances over a four-year period.

Treasury statistics from the end of March shows that 28.5% of Sri Lanka’s $37 billion in outstanding foreign debt is owed to bilateral creditors.

Of the $10.58 billion borrowed from foreign nations, $4.66 billion comes from China.

India contributes $1.36 billion and Japan $2.35 billion respectively.

$12.55 billion in international sovereign bonds (ISB) plus an additional $2.18 billion from the China Development Bank make up Sri Lanka’s commercial borrowings.

Wickremesinghe is likely to reveal specifics of the agreement at his speech to the country later on Wednesday.

The opposition parties in Sri Lanka have pledged to renegotiate the terms of the IMF bailout before of this year’s presidential election.

Peter Breuer, head of the IMF mission in Sri Lanka, stated that while the organization was open to considering different suggestions from competing political parties, it was imperative that the bailout’s criteria be adhered to.

He noted that while Sri Lanka has made excellent strides, the nation was still in danger.

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