ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe has called on bilateral creditors to coordinate among themselves to re-structure debt, setting the stage for the next step in getting the soft-pegged country out of bankruptcy.
Sri Lanka defaulted on its external debt in April 2022, like several African and Latin American countries, after running out of reserves by printing money to keep artificially low interest rates or operating both money and exchange policies simultaneously.
Sri Lanka is expecting the IMF’s Executive Board to approve its program on March 20, after getting assurances from the Paris Club, India and China to re-structure debt.
“There is still a lot of work to be done,” President Wickremesinghe told creditors in an open letter.
“I encourage you to maintain and even enlarge and strengthen official bilateral creditor co-ordination in the context of our forthcoming engagement.
“It is the best way of achieving an efficient, transparent and equitable implementation of our debt treatment exercise.
“For that I call on the Paris Club bilateral partners, in particular Japan, together with all our official bilateral partners, including India and China, to garner and foster co-ordination as you best see fit.”
Bilateral creditors have to work together and re-structure debt to reduce roll-over levels to ceilings set by the IMF (gross financing need) and reduce the debt to GDP ratio over time.
Sri Lanka for its part promised not to do any side deals with any single creditor or others giving special treatment.
President Wickremesinghe pledged to be transparent and provide all details on debt and treat all creditors in the same way.
“To that end we will not conclude debt treatment agreements with any official bilateral creditor or any commercial creditors or any group of such creditors on terms more favourable than those agreed under any multilateral platform put forward by our official bilateral creditors,” he said.
“To this end we also confirm that we have not and will not make any side arrangements with any creditor aimed at reducing the debt treatment impact of that creditor.
“I sincerely hope that these clarifications will provide conform to all of your and enable us to progress swiftly to the next stage of debt treatment negotiations.”
It is generally expected that Sri Lanka will finalize the debt re-structuring in time for the first review of the IMF program, which may take about six months.
As bilateral creditors talk to each other Sri Lanka will have to negotiate with private creditors to re-structure their debt according to officials. (Colombo/Mar14/2023)