• Wed. Jul 24th, 2024

Four reasons to consider domestic debt restructuring

Sri Lanka faces a challenge to emerge from the continuing crisis. A recent publication by VERITÉ Research argues that domestic debt restructuring (DDR) provides four benefits critical for the economy and country to emerge from the present crisis stronger and more resilient than before. First, DDR provides a pathway toward solvency for the Government of Sri Lanka. Second, it provides the foundations for the stability of the economy (macro stability). Third, it reduces the likelihood of needing subsequent sovereign debt restructuring, and fourth, it facilitates the equitable sharing of the burden of the costs of the crisis.

However, any restructuring of rupee debt would result in a required recapitalization of the banking sector and several other public and financial institutions.

In summary, VERITÉ Research Sri Lanka Policy Group: The Desirability of Domestic Debt Restructuring concluded that Sri Lanka needs to address its excess burden of both foreign and rupee-denominated debt while preserving its financial system. The study proposed an economically feasible approach that could restore Sri Lanka to macroeconomic and financial stability.

. The banking sector, insurance companies, EPF and ETF together hold 82% of the outstanding domestic debt of the central Government.

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