Sri Lanka's main opposition party to oppose government's debt restructuring plan in Parliament

Sri Lanka's main opposition party on Friday said it will vote against the government's domestic debt restructuring (DDR) plan as it is concerned over its implications on the cash-strapped country's banking and finance sector.

The Cabinet approved the debt restructuring plan on Wednesday which was to be referred to the public finance committee in parliament and finally for parliament’s approval on Saturday.

Sri Lanka’s banking and finance sector feared for the worse as the government set about restructuring the local debt of USD 42 billion, which is more than its external debt component.

“We will vote against it as there is no clarity on it”, Ranjith Madduma Bandara, General Secretary of the Samagi Jana Balawegaya (SJB) party told reporters.

Harsha De Silva, another lawmaker from the SJB, who heads the public finance committee said, “Based on the Governor’s explanation, the banking and insurance sectors as a whole won’t be affected. But through the international sovereign bonds and the Sri Lanka Development Bonds the banks could get affected”.

The opposition said they were looking forward to seeing the final proposal that will be presented in Parliament at the special session.

The parallel negotiations with the external creditors are ongoing in terms of the International Monetary Fund's bailout conditions for a nearly USD 3 billion bailout over 4 years.

President Ranil Wickremesinghe, who is also the finance minister, hopes to reduce USD 17 billion out of the total external debt of USD 41 billion.

Explaining the implications of the domestic debt restructuring on the local banks, the governor of the central bank Nandalal Weerasinghe said on Thursday that the banking sector would be totally safe from any adverse effects of the DDR.

He said the Central Bank holdings will be restructured, “the treasury bills will be exchanged for treasury bonds, with a longer-term grace period of 5 years and with maturity extensions, the treasury bonds held by banks would be excluded.

More consultations by the parliament’s public finance committee are billed to take place today and the final form of the parliamentary motion would be known thereafter.

Sri Lanka, which announced its first-ever sovereign default in April 2022, has negotiated with the IMF for a bailout of USD 2.9 billion.

The island nation is facing its worst economic crisis in history due to a shortage of foreign exchange reserves.

An imperative in the IMF bailout is to restructure external debt, which needs to be completed by September.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)