Sri Lanka pledged on Thursday to finalize its long-overdue foreign debt restructuring within December, ahead of its 2025 budget, which adheres to stringent revenue targets set by the International Monetary Fund (IMF).
The island nation defaulted on its $46 billion external debt in April 2022, when it ran out of foreign exchange reserves needed for essential imports like food and fuel. However, the economy has since stabilized, bolstered by an IMF rescue package and austerity measures to repair government finances.
Economic Development Deputy Minister Anil Jayantha Fernando acknowledged that delays in debt restructuring over two years had cost Sri Lanka an additional $1.7 billion in interest. “We are hoping to complete the restructure of bilateral debt and international sovereign bonds by December 31,” he stated.
President Anura Kumara Dissanayake, elected in September, announced that his government would unveil its first revenue and expenditure plans for 2025 in February. His administration has committed to honoring a $12.55 billion international sovereign bond restructuring agreement negotiated by his predecessor, which is vital to securing the $2.9 billion four-year IMF bailout.
While private creditors agreed in September to a 27% reduction in loan value, final agreements to conclude the restructuring and allow Sri Lanka to access international financial markets remain pending. The deal also requires bondholders to accept an 11% reduction on overdue interest payments.
President Dissanayake’s National People’s Power (NPP) coalition had initially criticized the restructure as unfair to the impoverished nation and vowed renegotiation upon coming to power. However, following last month’s parliamentary election victory, the administration reversed its stance, citing the fragile economic recovery.
Sri Lanka’s IMF bailout, secured in 2023, necessitated doubling taxes, withdrawing energy subsidies, and raising essential prices to boost state revenue. These austerity measures, though painful, are critical to maintaining the nation’s fiscal stability.
Source: AFP
