Debt stock rises over Rs.4.0tn amid hoopla around restructuring deals

As Sri Lanka is set to ink debt deals with the Paris Club creditors, bringing to close more than a year-long negotiations with the bilateral creditors, the data showed that Sri Lanka has increased its debt stock by as much as Rs.4.3 trillion in less than two years.

However, the foreign currency debt stock has remained nearly unchanged, as the government was unable to raise any new debt, with the exception of what it received from the multilateral lenders and International Monetary Fund (IMF), since it announced a debt standstill on most foreign currency debt back in April 2022.

According to the data, Sri Lanka’s total outstanding government debt stock was at Rs.28.6 trillion, up Rs.4.3 trillion from June 2022, soon after the government announced a debt standstill.

While this increase has almost entirely come from the domestic debt component, which has risen by Rs.4.5 trillion during this period, the outstanding foreign currency debt stock has slightly declined by Rs.190.1 billion to Rs.11.3 trillion as of January 2024.

However, this excludes the several debt service payments that became overdue from April 12, 2022, when the government announced the debt standstill.

These debt service payments consist of the overdue interest payments of the debt affected by the debt service suspension and would be capitalised.

By the end of June 2022, Sri Lanka owed US $ 46.6 billion in US dollar terms to the rest of the world through commercial, bilateral and multilateral debt and swap lines.

The debt deals, which are expected to be signed today, are with the Paris Club members, who hold part of the bilateral debt, which accounts for only US $ 3.5 billion or 7.4 percent of total foreign currency debt.

It wasn’t clear if the non-Paris club debt, which includes debt owed to China and India, would also be inked today (Wednesday). The non-Paris club members hold debt worth US $ 6.05 billion, including US $ 4.1 billion owed to China.

The expectation is that the signing of the debt deals would reopen access to bilateral credit.
In other words, the debt stock would further increase if Sri Lanka chooses to borrow.

This is under the much-hyped IMF’s debt sustainability framework and the economic stabilisation programme.
Meanwhile, it was also reported that the Sri Lankan counterparts are expected to resume their stalled negotiations with the bondholders to see if they could find some common ground to restructure around US $ 12.6 billion worth of International Sovereign Bonds.