Sri Lanka's Marxist-Led Government Secures Debt-Restructuring Agreement

The Sri Lankan government has announced a long-delayed debt restructuring agreement with its sovereign bondholders, in a major relief to the cash-strapped island nation. In a statement on Friday, the Ministry of Finance said it reached an agreement with representatives of its international and local holders of International Sovereign Bonds (ISB) on Sept. 19.

Sri Lankan authorities have "completed their consultations with Sri Lanka's Official Creditor Committee and the International Monetary Fund," said the statement from the Treasury. It added that the agreement is compatible with the comparative treatment principle.

The announcement came as the new National People’s Power government led by President Anura Kumara Dissanayake expressed willingness to accept the agreement during the talks held with the visiting IMF delegation here in Colombo on Thursday and Friday.

During the two days of talks, Dissanayake reiterated Sri Lanka’s position that some of the rigid IMF conditions must be watered down to grant relief to the public.

The IMF made external debt restructuring conditional to the $2.9 billion four-year facility clinched in March 2023 by the Ranil Wickremesinghe administration.

Sri Lanka has already obtained three tranches of about $360 million each under the Extended Fund Facility. The third tranche of the bailout package was released in mid-June as the Washington-headquartered global lender said on Aug. 2 that Sri Lanka’s economic reform programme had yielded good results.

Days before the presidential elections, the then Wickremesinghe-led government, which undertook the laborious task of debt restructuring, announced an in-principle agreement with external commercial creditors for the restructuring of approximately $17.5 billion of external commercial debts.

Wickremesinghe, who was also the finance minister, was defeated in the presidential election last month.

The NPP in the run-up to the election had called the IMF deal a 'death trap' and vowed to renegotiate it.

In April 2022, the island nation declared its first-ever sovereign default since gaining Independence from Britain in 1948. The unprecedented financial crisis led Wickremesinghe's predecessor Gotabaya Rajapaksa to quit office in 2022 amid civil unrest.