SL and Paris Club agree on preliminary debt deal

• The deal is likely to help Sri Lanka clear the first review of the IMF bailout programme, which would enable the release of US $ 330mn as the second tranche  

by indika sakalasooriya
Sri Lanka and the country’s Official Creditor Committee (OCC) co-chaired by India, Japan and France as the Chair of the Paris Club have agreed on a preliminary debt restructuring deal, a statement issued by the Paris Club Secretariat said, yesterday.   

The country’s Finance Ministry said the agreement covers approximately US $ 5.9 billion of government debt which comprises a mix of long-term maturity extensions and reduction in interest rates.  
“The OCC and Sri Lanka agreed on the main parameters of a debt treatment consistent with those of the Extended Fund Facility (EFF) arrangement between Sri Lanka and the IMF,” the statement issued by Paris Club Secretariat said.  
“This agreement will allow the IMF staff to present to the IMF Executive Board the first review of Sri Lanka’s EFF arrangement and open the way for approval of the second disbursement under the arrangement,” it added.  
“The OCC stands ready and looks forward to formalizing this agreement in the coming weeks in a Memorandum of Understanding with the Sri Lankan authorities,” if further said.   
The OCC expects other bilateral creditors to consent to sharing, in a transparent manner, the information necessary for tthem to evaluate comparability of treatment regarding their own bilateral agreement.  The Sri Lankan government in October said it reached an agreement with the Exim Bank of China on key terms and principles for restructuring its debt worth US $ 4.2 billion.   
The Central Bank Governor Dr.Nandalal Weerasinghe was quoted as saying a couple of weeks ago that the details of the agreement with Exim Bank of China were shared with Paris Club creditors.   
Meanwhile, the OCC also expects the Sri Lankan authorities to continue to engage with their private creditors to find as soon as possible an agreement on terms at least as favourable as the terms offered by the OCC.   Sri Lanka in October snubbed a proposal from the country’s sovereign bondholders who have organized themselves under the banner ‘Ad Hoc Group of Bondholders’ over the potential issuing of GDP-linked bonds to restructure their debt.  

A statement issued by the Finance Ministry expressed its “serious reservations” about the proposal and asked the bondholders to continue to engage with the country’s debt advisors “to progress the matter in a reasonable and viable way.”  According to the most recent data released by the Finance Ministry, Sri Lanka’s total external debt amounted to US $36.6 billion, with bilateral credit accounting for US $10.94 billion and commercial credit totaling US $14.73 billion. As per IMF estimates, Sri Lanka needs a debt reduction of about US $ 17 billion to restore its sustainability.  
Meanwhile, the Finance Ministry said the next step for Sri Lanka is to finalize similar agreements with the remaining official bilateral creditors including Saudi Arabia, Pakistan, Kuwait and Iran, cumulatively representing US $ 274 million of outstanding claims.  
“The authorities would like to reaffirm their commitment to transparency, comparable treatment of all participating external creditors and full compliance with the debt sustainability targets under the IMF-supported progarmme,” a Finance Ministry statement said.