Economists see silver lining as SL seals debt deals

By Shabiya Ali Ahlam
Sri Lanka solidified long-awaited agreements with its lenders yesterday, a move economists believe will foster positivity and help the nation emerge from selective default.

The agreements with bilateral creditors are viewed as crucial for enhancing the sustainability of Sri Lanka’s external debt, signalling a positive direction for the country’s financial stability.

“Interest payments will be lowered going forward, and there will be maturity extensions on principal payments. This will provide much-needed breathing space in managing our external sector outflows,” said Murtaza Jafferjee, Chairman of the Advocata Institute, to Mirror Business.

This development is expected to pave the way for the resumption of stalled infrastructure projects, such as phase 1 of the Central Expressway and the Airport.

“The next step in the journey is to secure an agreement with external commercial creditors (ISB holders) as soon as possible. This will result in rating companies issuing a positive rating action and hopefully a higher rating, allowing us to exit selective default,” Jafferjee added.

Jafferjee pointed out that a better rating will attract foreign funds, both equity and debt, into the country, further improving monetary liquidity and much-needed equity growth.

Senior economist Prof. Sirimal Abeyratne also noted that finalising the agreements will help the crisis-struck island nation unlock its potential and achieve sustainability.

Once Sri Lanka finalises the deal with bondholders, it will be able to declare itself out of bankruptcy. This signifies the nation’s capability to handle its expenditure and manage its debt obligations, repaying less over a longer duration.

However, Prof. Abeyratne cautioned that merely emerging from bankruptcy is insufficient.

“Coming out of bankruptcy alone is not enough. It does not mean that Sri Lanka is out of the woods or even at the pre-crisis level. Ideally, we should strive to be at the level before 2019. We need to catch up, move beyond, and improve further. We need to achieve progress beyond recovery,” he asserted.

Economist Talal Rafi emphasised that concluding the debt restructuring is beneficial as it reduces economic uncertainty to some extent.

“However, the more important thing is to see if we got a good deal and a deal that is sustainable, as these repayment terms will affect Sri Lanka for years to come,” Rafi noted.