Sri Lanka’s government said on Wednesday it has finalised a long-delayed debt restructuring agreement for USD 5.8 billion with its bilateral lenders, including India and China, in Paris to meet a key condition of an IMF bailout.

A woman walks past posters pasted on a roadside wall saying ‘good news’ in Sinhala language, in Colombo on June 25, 2024, as President Ranil Wickremesinghe is expected to announce a debt restructure deal with bilateral lenders after a sovereign default in April 2022. (Ishara S.Kodikara / AFP)

This was announced by President Ranil Wickremesinghe’s office, which said the agreement grants significant debt relief allowing Sri Lanka to allocate funds to essential public services and secure concessional financing for its development needs.

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“Sri Lanka reached a final restructuring agreement for 5.8 billion US dollars with its bilateral lenders’ official creditor committee in Paris,” the President’s office said in a statement.

The statement came ahead of a televised address to the nation later tonight by President Wickremesinghe, who has steered the effort to take the island out of the economic crisis since Sri Lanka declared its first-ever sovereign default in 2022.

About Sri Lanka’s President Ranil Wickremesinghe

President Wickremesinghe, who also holds the portfolio as the finance minister, is expected to contest the presidential election in the coming months. It is understood that Wickremesinghe, 75, will ‘declare an end to bankruptcy’ following the agreement reached with bilateral creditors and private bondholders on external debt restructuring.

State Finance Minister Shehan Semasinghe announced that the Sri Lankan authorities are also in the process of signing bilateral debt treatment agreements between Sri Lanka and the Export-Import Bank of China.

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“On behalf of Sri Lanka, I would like to sincerely thank the OCC chairs – France, India, and Japan – as well as the Export-Import Bank of China for their leadership in this process, as well as all OCC members for their unwavering support,” he said.

He also commended the OCC Secretariat for their dedication to finding a resolution to our debt crisis and achieving this significant milestone, which will enhance confidence in Sri Lanka’s economy and foster growth.

What does the agreement mean for Sri Lanka?

This agreement means that half of the government’s external debt by creditor countries and organisations has been restructured. The details of the restructuring are yet to be announced.

According to the Treasury figures, as of the end of March 2024, the debt stock outstanding remained at USD 10,588.6 million.

The official creditor committee comprised the Paris Club of Nations – Japan, the UK, and the US, while the non-Paris Club nations were China, India and the rest.

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The government officials said a special session of parliament is to be convened on July 2 ahead of its scheduled July 8 date to discuss the deal.

Speaker Mahinda Yapa Abeywardena has issued a special gazette convening parliament on July 2 at the request of Prime Minister Dinesh Gunawardena.

Having sealed the deal with the bilateral creditors the government was to have another round of talks starting this week with private creditors and the international sovereign bondholders for restructuring. By March 2024 the outstanding commercial loan stock was 14,735.9 million US dollars.

What’s currently happening in Sri Lanka?

Earlier this week, posters appeared on the city walls captioned “good news” which appears to be part of the political campaign on the success of the debt restructuring effort which took so long to achieve.

Sri Lanka in mid-April of 2022 declared its first ever sovereign default since gaining independence from Britain in 1948.

The International Monetary Fund had made external debt restructuring conditional to the USD 2.9 billion bailout – the third tranche of which came to be released last week.

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Wickremesinghe supervised the IMF programme while setting in motion hard economic reforms prescribed by the world lender.

On Sunday, he made his first public statement on the presidential election, which is likely to take place in the last quarter of this year.

Addressing a group of youth, he said that the election could take place either in September or October.

Wickremesinghe is yet to announce his candidacy while two other main opposition leaders have already declared themselves to be in the fray.

In July 2022, Wickremesinghe was elected through parliament to become stop-gap president for the balance term of Gotabaya Rajapaksa who resigned following public protests over his inability to handle the economic crisis.