Overall restructuring provides significant debt relief, sufficient to restore debt sustainability, says Treasury Secy

Concerns still persist over Sri Lanka’s debt situation, but Treasury Secretary Mahinda Siriwardana affirmed that the restructuring provides significant debt relief, sufficient to restore debt sustainability, as confirmed by the IMF’s assessment. Siriwardana emphasised that Sri Lanka must utilise the cash flow relief and fiscal space provided by the restructuring to rebuild its fiscal and external sector buffers, as outlined in the IMF-supported reform programme, to ensure that future debt service obligations can be met without difficulty. He made these remarks during a meeting with senior officials from the General Treasury and Ministry of Finance on 1 January. Siriwardana further noted that the agreements in principle negotiated with the Ad-Hoc Group (AHG) and the Local Consortium of Sri Lanka (LCSL) offer a fair balance of risk-sharing, addressing Sri Lanka’s concerns and meeting bondholders’ requirements.
“The MLB structure, following the adjustments made through the evolution of the proposed instrument, enables the appropriate sharing of upside between creditors and the debtor, whilst ensuring that in this process, Sri Lanka’s debt sustainability is not compromised, as confirmed by IMF assessment of DSA compatibility,” he said.
Debt relief from the restructuring is calculated through cash flow relief, including maturity extension, coupon (interest) reduction, principal haircut, and a capital grace period.
The ISB restructuring provides Sri Lanka with an upfront debt stock reduction of US$ 3.0 billion, which could increase to US$ 4.3 billion in the event of an economic downturn, or decrease to US$ 1.8 billion in case of economic overperformance (compared to the IMF baseline). Additionally, it includes a US$ 94 million reduction in debt service payments during the four-year IMF programme period.
The restructuring also provides a 33 percent reduction in the coupon rate of Sri Lanka’s bonds, lowering it to 4.3 percent, and extends the average maturity profile by about six years.
In total, as of the ISBs exchange settlement date, bondholders will agree to a Net Present Value (NPV) concession of 40 percent under the IMF baseline scenario. Under the highest MLB threshold, the NPV concession would be 33 percent when applying the standard commercial market discount factor of 11 percent.
On 20 December 2024, Sri Lanka successfully concluded the ISB restructuring settlement, prompting Fitch Ratings to upgrade Sri Lanka’s credit rating from Restricted Default to CCC+.