Sri Lanka nears end of debt restructuring
Sri Lanka is on the verge of completing its debt restructuring process, with agreements already secured for the majority of its US$28 billion in outstanding external debt. Following recent breakthroughs—including a deal with China Exim Bank and the successful Eurobond exchange—the government has narrowed the unresolved portion to just $0.8 billion, officials confirmed.
The Finance Ministry said that bilateral debt restructuring agreements have already been signed with major lenders India and Japan, while it is negotiating with the rest of the members of the Official Creditor Committee (OCC). Talks are ongoing with other bilateral creditors like Saudi Arabia, Kuwait, Iran, and Pakistan to seal everything by 2025.
A senior Treasury official noted, “We are now well advanced in our engagement with all stakeholders and expect to finalise agreements shortly. This marks a turning point in our economic recovery.”
With major creditors having signed Memoranda of Understanding (MOUs) or extended final restructuring terms, International Monetary Fund (IMF) approval for continued disbursement is no longer contingent upon the agreement of all creditors. Despite this progress, risks remain.
A $250 million legal dispute with Hamilton Reserve Bank (HRB), stemming from a defaulted sovereign bond, continues to pose a threat to the debt sustainability framework. However, the IMF and Central Bank have both indicated that the overall risk is manageable.
“The impact is limited due to the relatively small bond amount under dispute and the protective design of the ‘most favored creditor’ clauses in the restructured bonds,” a Central Bank official explained. The US court overseeing the HRB litigation recently denied a motion for summary judgment, instead granting Sri Lanka additional time for discovery—a development seen as a temporary relief.
Meanwhile, financial advisors have been appointed to restructure $175 million in international bonds issued by Sri Lankan Airlines and guaranteed by the government.
Other reform measures continue in parallel, including updates to governance structures in state-owned banks and tax issues affecting foreign transactions. The Central Bank is also addressing liquidity risks through the Internal Liquidity Adequacy Assessment Process (ILAAP).
As most of the external debt restructuring is nearing its completion, attention now turns to long-term debt sustainability, economic reforms, and the restoration of investor confidence in the path of recovery of Sri Lanka
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