Sri Lanka makes formal request for debt treatment at first creditor committee meeting

In April 2022, Sri Lanka declared its first-ever debt default, the worst economic crisis since its independence from Britain in 1948, triggered by forex shortages that sparked public protests.

Crisis-struck Sri Lanka formally requested debt treatment at the first meeting of the official creditor committee, State Minister for Finance Shehan Semasinghe said on Wednesday.

In a meeting held on Tuesday, co-chaired by India, Japan and France, the island nation's authorities formally presented Colombo's request for debt treatment.

"We reiterated our commitment to transparency and compatibility of treatment with all our creditors and underlined the need to address the country's debt situation as soon as possible," Semasinghe said.

A statement by the Paris Club said that 17 countries, including Paris Club creditors and other official bilateral creditors, formally formed an official creditor committee to discuss the Sri Lankan authorities' request for debt treatment. Sri Lanka is yet to announce its plan for external and local debt restructuring, and according to officials, consultations on both aspects are underway.

The committee ''will pursue its work to find an appropriate solution to Sri Lanka's external debt vulnerabilities, consistent with the parameters of the IMF programme,'' the statement said. Last month, Central Bank Governor Nandalal Weerasinghe said debt sustainability and relief analysis with creditors would be followed by agreements with official creditors.

Sri Lanka in March clinched the first tranche of a nearly USD 3 billion International Monetary Fund (IMF) bailout package over four years, pending agreement with the creditors, to revive the island's economy, hit hard by a catastrophic economic and humanitarian crisis sparked by years of mismanagement and the raging pandemic.

The facility's release was held back until the creditors issued financing guarantees.

Washington-based IMF said Sri Lanka's debt restructuring proposal should cover official bilateral and commercial creditors and expects the debt restructuring to be done through an extension of the grace period and maturity interest rate reduction, nominal hair cut or a combination of these.

According to official figures, Sri Lanka's total debt is USD 83.6 billion, of which foreign debt amounts to USD 42.6 billion and domestic debt amounts to USD 42 billion.

Sri Lanka Banks Association, which expressed concerns over possible local debt restructuring, has now announced the Central Bank's assurance that the banking sector's stability would not be put at risk in the talks with diverse stakeholders. In April 2022, Sri Lanka declared its first-ever debt default, the worst economic crisis since its independence from Britain in 1948, triggered by forex shortages that sparked public protests.