Sri Lanka says Official Creditor Committee agreed in principle to restructure $5.9bn of debt

The Sri Lankan government has announced that it has reached an agreement in principle with its Official Creditor Committee (OCC) on the financial terms of a debt treatment. 

Issuing a statement, the Ministry of Finance, Economic Stabilization and National Policy stated that the agreement in principle covers approximately US$ 5.9bn of outstanding public debt and consists of a mix of long-term maturity extension and reduction in interest rates.

The Sri Lankan government has commended the support and cooperation of OCC members in reaching this agreement, which demonstrates a mutual commitment to restoring public debt sustainability in line with the International Monetary Fund (IMF) program targets, the statement mentioned.

The agreement is expected to facilitate a swift approval by the IMF Executive Board of the First Review of Sri Lanka’s IMF-supported program, allowing for the next tranche of IMF financing of about US$ 334 million to be disbursed.

The agreed-upon debt treatment terms will be further detailed and formalized in a Memorandum of Understanding (MoU) between Sri Lanka and the OCC, which will then be implemented through bilateral agreements with each OCC member, in accordance with their laws and regulations.

The Sri Lankan government looks forward to a prompt implementation of the agreed terms, the Finance Ministry said.

Speaking in this regard, Secretary to the Treasury/Ministry of Finance, Economic Stabilisation and National Policies, K. M. Mahinda Siriwardana said:

“This agreement marks a landmark step for Sri Lanka. We extend our sincerest thanks to the OCC and its co-chairs, Japan, India and France, for the unwavering support in resolving our country’s public debt situation. This agreement serves as a key milestone in Sri Lanka’s ongoing endeavour to achieve public debt sustainability and to foster economic recovery.”

The Finance Ministry said this agreement in principle, together with the agreement in principle reached last month with China Export-Import (Exim) Bank, goes a long way in dealing with Sri Lanka’s external bilateral debt restructuring. 

The next steps will include finalizing similar agreements with our remaining official bilateral creditors, including Saudi Arabia, Pakistan, Kuwait and Iran, altogether representing a further US$ 274 million of outstanding claims, the statement read further.

Sri Lankan government says it now intends to focus its efforts on reaching comparable debt restructuring agreements with external commercial creditors, and in particular with its holders of international sovereign bonds. “Good faith engagement is still ongoing in that regard, and the authorities would like to invite its bondholders to now accelerate the discussions with a view to coming to a mutually acceptable agreement as promptly as possible.”

The authorities have reaffirmed their commitment to transparency, comparable treatment of all participating external creditors, and full compliance with the debt sustainability targets under the IMF-supported program.

Earlier today, the OCC confirmed that it has reached an agreement with Sri Lanka on the main parameters of a debt treatment consistent with those of the Extended Fund Facility (EFF) arrangement between Sri Lanka and the IMF.