Sri Lanka is on the brink of signing a debt restructuring agreement with a group of creditor nations, signaling a crucial development in the country’s efforts to navigate its severe economic crisis. Foreign Minister Ali Sabry revealed that the agreement is expected to be finalized on Wednesday, marking a significant milestone in Sri Lanka’s journey towards financial stability.
The South Asian island nation plunged into an economic crisis in 2022 after defaulting on its foreign debt, as its foreign exchange reserves dwindled. With approximately $5.9 billion in bilateral debt owed to 17 nations, Sri Lanka found itself in a precarious financial predicament. The majority of this debt is owed to key creditor nations such as Japan, India, and France, who are represented by the Official Creditor Committee (OCC).
Though a provisional agreement was reached with the OCC in November, Sri Lanka still faces the daunting task of finalizing agreements on $12.5 billion owed to private bondholders and resolving outstanding loans with the Export-Import Bank of China amounting to $4.2 billion. The successful completion of these negotiations is crucial for Sri Lanka to regain access to international lending and pave the way for economic recovery.
With the assistance of a $2.9 billion bailout package from the International Monetary Fund (IMF), Sri Lanka’s economy is projected to grow by 3% in 2024, following two consecutive years of economic contraction. This international support, coupled with the potential debt restructuring agreements, offers a glimmer of hope for Sri Lanka’s economic prospects and underscores the importance of effective financial management and strategic partnerships in overcoming economic challenges.