Sri Lanka is approaching the final stage of unveiling its debt restructuring strategy, marking a significant milestone in the nation’s efforts to navigate its worst economic crisis in seven decades.
BNN Breaking gathered that the country’s cabinet is set to approve the blueprint later today Wednesday, June 28. Once approved, the strategy will be presented to Parliament on July 1 for debate and ratification.
The debt restructuring plan is a crucial step for Sri Lanka to reach agreements with its creditors, balance the demands of domestic institutions and foreign bondholders, and unlock further funding following the first review of its $3 billion International Monetary Fund (IMF) program, expected in September.
Balancing Demands and Unlocking Funding
The debt restructuring blueprint plays a vital role in Sri Lanka’s efforts to address its financial challenges. With rupee debt reaching approximately $38 billion and external borrowings totaling $41 billion, the country is seeking to strike a balance among various stakeholders, including domestic institutions, foreign bondholders, and bilateral creditors. The successful implementation of the restructuring plan will not only facilitate the debt recast but also support Sri Lanka in securing debt relief of $17 billion from foreign creditors over the next five years, according to the president’s media unit. The strategy aims to establish a framework that addresses the concerns of all parties involved and paves the way for the country’s economic revival.
Concerns of Domestic Bondholders and Banks
The involvement of domestic bondholders in sharing the losses has been a key demand raised by overseas investors. Major lenders in Sri Lanka, including Commercial Bank of Ceylon Plc. and Hatton National Bank Plc, have expressed concerns about potential capital impairment. The domestic debt restructuring plan, as indicated by Minister of State for Finance Ranjith Siyambalapitiya, will primarily focus on extending the maturity of bonds and reducing interest rates. While the strategy aims to meet the country’s financing needs comfortably, financial experts suggest that the restructured bonds’ interest rates may need to be set around 12% to 13% to minimize significant capital loss for banks.
Ensuring Stability and Market Impact
Authorities have reassured that the local debt restructuring process will not adversely affect the stability of Sri Lanka’s banking system or the interest rates offered on bank deposits. In light of the ongoing developments, local financial markets will be closed for five days. The Sri Lankan rupee has shown a slight appreciation against the dollar, while the 2030 dollar bond has traded steadily. The government’s commitment to implementing a comprehensive debt restructuring strategy reflects its determination to stabilize the economy, attract investment, and foster sustainable growth.
(Source:BNN)