Sri Lanka Clears Way For Debt Restructuring Days Before Elections

Cash-strapped Sri Lanka on Thursday announced that it has reached an in principle agreement with external commercial creditors the restructuring of approximately $17.5 billion of external commercial debts.

The agreements have been reached with holders of its International Sovereign Bonds, following negotiations with the Ad Hoc Group of Bondholders (AHGB), a representative group of international investors, and the Local Consortium of Sri Lanka (LCSL), a representative group of domestic financial institutions.

A statement from the President's Media Division said, collectively, the two groups hold in excess of 50% of the bonds.

Sri Lanka declared its first-ever sovereign default in mid-April 2022, having run out of its foreign exchange reserves. The halt to the debt services meant that the multilateral creditor nations and commercial lenders could not extend fresh financing to the country.

In July, the Sri Lankan government reached a debt restructuring deal with international sovereign bondholders after protracted negotiations with countries such as China, India, France and Japan.

President Ranil Wickremesinghe on Wednesday said that the island nation's bankruptcy is officially due to end on Thursday, remarks aimed at boosting his re-election chances on the last day of the presidential election campaign ahead of the Sept. 21 election.

The PMD statement said, the agreements provide Sri Lanka with enhanced debt relief compared to the Joint Working Framework agreed in July 2024, including a further reduction in interest payments provided in the new agreement.

"Sri Lanka also announced that it has finalised agreement in principle with China Development Bank (CDB) on the key financial terms of the restructuring of approximately $3.3 billion of sovereign debt," the PMD added.

Sri Lanka is currently in negotiations with the International Monetary Fund, which has made external debt restructuring conditional to the $2.9 billion bailout package.

The third tranche of the bailout package was released in mid-June. The Washington-headquartered global lender said on Aug. 2 that Sri Lanka’s economic reform programme has yielded good results.