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Sri Lanka seeks debt moratorium until 2028 amid economic recovery efforts

A collapse in foreign exchange reserves saw months of food and fuel shortages along with street protests that forced the ouster of President Ranil Wickremesinghe’s predecessor in 2022.

Screenshot 2024 03 07 075054COLOMBO: Sri Lanka’s president said on Wednesday that he was seeking a moratorium on foreign debt repayments until 2028, following a government default during the island nation’s unprecedented economic crisis two years ago.

A collapse in foreign exchange reserves saw months of food and fuel shortages along with street protests that forced the ouster of President Ranil Wickremesinghe’s predecessor in 2022.

Sri Lanka has since signed up to an International Monetary Fund rescue package and is working to repair public finances since the government defaulted in April of that year.

Wickremesinghe said talks were still ongoing with both bilateral and private creditors to restructure its billions of dollars in loans and bonds.

“We intend to secure temporary relief of not having to service our debts till the end of December 2027,” Wickremesinghe told lawmakers in parliament.

Sri Lanka’s foreign debt stood at USD 52.65 billion at the end of September 2023, according to central bank figures.

To maintain the IMF bailout programme, Sri Lanka must clinch a firm deal with foreign creditors, both bilateral and private bondholders, before the IMF’s next review of the economy by June this year.

The IMF released a USD 337-million second tranche of its bailout loan in December after Colombo secured an “in principle” debt agreement with Beijing.

China is Sri Lanka’s biggest single bilateral lender, accounting for around 10 per cent of the island’s total foreign debt.

Neither Colombo nor Beijing have disclosed details of the offer, but the IMF said it was sufficient to ensure the island’s debt sustainability. But the IMF said it wanted the “in principle” agreement between the two countries firmed up before the next review.

Official sources in Sri Lanka have said the Chinese deal included a mix of extending the tenure and reducing interest on bilateral debt, instead of taking a haircut on its loans.

Sri Lanka’s economy has stabilised since the worst of the 2022 crisis, which saw months of civil unrest culminating in the ouster of then-president Gotabaya Rajapaksa when thousands of protesters stormed his home.

Wickremesinghe has drastically raised taxes and cut generous consumer subsidies to boost government revenue, in line with IMF recommendations.

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