Debt talks with Paris Club and India on one platform; China separately

Ranil Wickremesinghe

• Prez tells Parliament that SL going for debt talks without any prior conditions
• According to IMF’s debt sustainability analysis, SL needs US $ 17bn debt service reduction 
• As of April 2022, SL’s total debt stood at US $ 83.6bn-US $ 41.5bn of foreign debt and US $ 42bn of domestic debt
• Says if a DDR is carried out, it would be done with measures in place to safeguard financial sector stability 

Sri Lanka plans to continue bilateral debt restructuring negotiations with the Paris Club creditors and India on a common platform and with China separately, without any prior conditions, in order to reach debt sustainability by restructuring the country’s unsustainable debt to manageable levels.

“China is expecting to work separately. So, on one side, we will discuss with Paris Club and India. On the other side, we will discuss with China. After these discussions, we can commence negotiations with private creditors,” President Ranil Wickremesinghe told Parliament yesterday, opening the debate on Sri Lanka’s programme with the International Monetary Fund (IMF).

According to the IMF staff baseline scenario, a US $ 17 billion debt service reduction is required, including the arrears accumulated in 2022.

“So, we are trying to get a US $ 17 billion debt reduction on that side. Do you want it or not? Are we going in for debt restructuring? We can’t manage without debt restructuring. That is what I want to make it clear to all the members,” he said.

By April, last year, Sri Lanka’s total debt stood at US $ 83.6 billion-US $ 41.5 billion of foreign debt and US $ 42 billion of domestic debt. Due to non-repayment of bilateral and private loans, Wickremesinghe noted that the amount of outstanding debt from April to December last year rose by US $ 2.7 billion.

“If we don’t restructure the debt, we wouldn’t have liquidity either in US dollars or rupees for the government to go ahead,” he added.

Speaking of domestic debt restructuring, he noted that the government has not taken a final decision on it as yet while stressing that domestic debt restructuring would be considered during the discussions with the foreign creditors. 

“We must first negotiate with the foreign creditors. We hope to initiate these discussions soon, with domestic debt restructuring also being considered. A final decision has not yet been made but it is important to discuss this issue,” he added.

Commenting on the requests by certain parties to take out domestic debt restructuring out of the negotiations table, he insisted that it is favourable for the country to go into negotiations without any prior conditions. Otherwise, he cautioned that Sri Lanka would also have to face terms and conditions from foreign creditors.

Wickremesinghe assured that if a rupee debt restructuring is to take place, it would be done with measures in place to safeguard the overall financial sector stability and inflicting no harm on the members of the Employees’ Provident Fund.

“Some banks may express their inability to cope with the programme but it is important for them to accept it in order to move the economy forward. There are concerns that the stock market may collapse and some may not be able to offer different conditions. However, decisions will be made in Parliament and appropriate measures will be taken to ensure that no harm is done to anyone, such as the members of the Employees’ Provident Fund,” he said.