Japan urges SL to speed up inking MoU with creditors

• Emphasises on need to ensure transparency and comparability in agreements with creditors outside OCC
• SL under pressure to finalise agreements with creditors and bondholders before second IMF review in March 2024

Japan, one of Sri Lanka’s main creditors, asserted the need for Sri Lanka to speed up efforts in inking the memorandum of understanding (MoU) with its creditor nations on debt restructuring at the earliest.

According to a news report from Reuters, Japan has reiterated the need to firm up the deal with the creditors without further delay, as an agreement was reached in principle late last year.

In a statement, Japan also emphasised the need to ensure transparency and comparability in agreements with the creditors outside the Official Creditor Committee (OCC).

Japan, along with France and India, co-chairs the committee of 15 creditor nations.

Having faced the worst financial crisis since independence, due to the poor management of the economy by the Gotabaya Rajapaksa government, Sri Lanka was pushed to default its loan repayments.

After several rounds of negotiations with the International Monetary Fund (IMF), the island nation has bagged a bailout package, which however has several conditions.

One such condition is the debt restructuring, which Sri Lanka is yet to formalise with its creditors.

In November 2023, Sri Lanka and its creditors reached an agreement in principle on debt restructuring that would cover approximately US $ 5.9 billion of outstanding public debt. This consisted of a mix of long-term maturity extensions and reductions in interest rates.

China, Sri Lanka’s largest bilateral creditor, after much delay, struck its deal with Sri Lanka on debt restructuring. While China Exim Bank was the first to provide Sri Lanka with the agreement in principle, it has not joined the OCC.

Sri Lanka’s total external debt is estimated at US $ 36.4 billion. This includes US $ 10.81 billion of 
bilateral debt.

Sri Lanka has a deadline to meet in entering into agreements with its creditors and bondholders. As per the IMF conditions, the agreements have to be inked before the second review, which is scheduled for March 2024.