Sri Lanka has announced the successful completion of its International Sovereign Bonds exchange offer, with 98 per cent of bondholders participating, a development that will help the island nation to restructure the country’s debt and secure new securities.
Sri Lanka Path To Debt Restructuring
The announcement by the government on Friday comes days after it had ratified the agreement for debt restructuring – sealed in the previous regime – for USD 14.2 billion – compulsory to maintain debt sustainability by the IMF through an exchange of new bonds for the existing bonds.
President Anura Kumara Dissanayake, who is also the finance minister, hailed the high participation as a vote of confidence from international and local stakeholders.
“The Ministry of Finance is pleased to announce the expiration of its Consent Solicitation and Exchange Offer related to its International Sovereign Bonds (ISBs), with preliminary results indicating a very high participation from market participants,” said a statement from the Treasury.
Sri Lanka had on November 25 invited two main groups of holders of its ISBs to exchange their bonds against new debt instruments, pursuant to the agreement in principle reached on September 19 with two representative groups of holders.
These two groups comprise international investors and the domestic financial institutions, together holding approximately 50 per cent of the total outstanding amount of ISBs.
Sri Lanka had on November 26 announced that it has ratified the agreement for debt restructuring for USD 14.2 billion, compulsory to maintain debt sustainability by the International Monetary Fund (IMF) through an exchange of new bonds for the existing bonds.
A week prior to it, the National People’s Power (NPP) government got the IMF approval for a staff-level agreement to secure the fourth tranche of the nearly USD 3 billion bailout package, something that President Dissanayake backed despite his pre-presidential election rhetoric to renegotiate with the global lender to water down tough conditions.
The debt restructuring agreement was reached in the last week of the then President Ranil Wickremesinghe’s regime in September, days before the presidential polls.
‘Collective Efforts Paying Off’
He highlighted that the exchange would provide substantial debt relief, free resources for development and ensure long-term fiscal stability.
“A final consensus on restructuring debt by the members of the Official Credit Committee (OCC) of major bilateral creditors in June 2024. In September 2024, an initial agreement has been reached with the international bondholders on restructuring of sovereign debt of USD 14.2 billion,” a cabinet spokesman announced on November 26, a day after the Sri Lankan cabinet ratified the debt restructuring agreement.
On Friday, Dissanayake hailed the high participation as a vote of confidence from international and local stakeholders, newspaper Daily Mirror said.
“We are very pleased to see this vote of confidence from our international and local bondholders. The past few years have been very challenging for the Sri Lankan population, but all of our collective efforts are now paying off.
Altogether, the IMF has extended the island nation an Extended Fund Facility (EFF) of USD 2.9 billion. IMF’s Saturday approval for the staff-level agreement will facilitate the fourth tranche – around USD 330 million – of the four-year facility. | File
The implementation of this debt exchange, which is the result of two years of intense negotiations, will deliver substantial debt relief for Sri Lanka, freeing up resources in the short and medium term to finance our development and social Agenda, while restoring the long term sustainability of our public finances,” he was quoted by the Treasury statement as saying.
“Today we open a new chapter of our history and turn the page following multiple years of crisis,” he said.
A staff-level agreement is a preliminary pact reached between the IMF staff and the government of a country on a set of economic policies and reforms that the country must implement in exchange for financial assistance from the global lender.
Altogether, the IMF has extended the island nation an Extended Fund Facility (EFF) of USD 2.9 billion. IMF’s Saturday approval for the staff-level agreement will facilitate the fourth tranche – around USD 330 million – of the four-year facility.
Sri Lanka had plunged into an economic crisis when the island nation declared sovereign default in mid-April of 2022, its first since gaining independence from Britain in 1948. Almost civil-war-like conditions and months of public protests led to the fleeing of the then president Gotabaya Rajapaksa.
On December 6, while presenting the interim budget, Deputy minister of finance Anil Jayantha Fernando said that the delay in debt restructuring over the last two years had cost the country an additional USD 1.7 billion in accumulated interest. |
Wickremesinghe took over and the negotiations with the IMF began soon after. His government then clinched the bailout a year later in March 2023.
As of July 2024, Sri Lanka’s external debt stood at a total of USD 37 billion, which includes USD 10.6 billion in bilateral credit and USD 11.7 billion in multilateral credit. The commercial debt was USD 14.7 billion, of which USD 12.5 billion is in sovereign bonds.
Debt restructuring agreement with both bilateral and sovereign bondholders was made compulsory to maintain debt sustainability by the IMF.
On December 6, while presenting the interim budget, Deputy minister of finance Anil Jayantha Fernando said that the delay in debt restructuring over the last two years had cost the country an additional USD 1.7 billion in accumulated interest.
“We are hoping to complete the restructure of bilateral debt and international sovereign bonds by December 31,” Fernando said.
(Except for the headline, this article has not been edited by FPJ’s editorial team and is auto-generated from an agency feed)
