Colombo, Sri Lanka – In a major development, Sri Lanka has announced that it will save a whopping $5 billion following the restructure of its bilateral debt. This move, which includes slashed interest rates and longer repayment schedules, is expected to provide much-needed relief to the island nation’s struggling economy. President Ranil Wickremesinghe made the announcement on Tuesday, stating that the deal struck last week will have a significant impact on the country’s financial situation.
The small island nation had defaulted on its foreign borrowings in 2022, leading to an unprecedented economic crisis. This crisis resulted in months of food, fuel, and medicine shortages, causing immense hardship for the people of Sri Lanka. However, with the new debt restructuring plan in place, the country is now on the path to recovery.
President Wickremesinghe revealed that the restructure measures have secured a moratorium on debt payments until 2028. This means that the tenure of loans has been extended by eight years, and the interest rates have been reduced to an average of 2.1%. This is a significant relief for Sri Lanka, as some of its loans from China were at high-interest rates of up to 8.0%. In comparison, borrowings from Japan, the second-largest lender, were at less than 1.0%.
The restructure plan was agreed upon by bilateral lenders, including China, which is the government’s largest single creditor. While China did not agree to take a haircut on their loans, the terms agreed upon will still provide much-needed assistance to Sri Lanka. The country has also struck separate deals with other bilateral creditors, including Japan, France, and India.
According to treasury data from March, bilateral creditors account for 28.5% of Sri Lanka’s outstanding foreign debt of $37 billion. This figure excludes government-guaranteed external loans. Out of the $10.58 billion that Sri Lanka has borrowed from other countries, China accounts for $4.66 billion. This highlights the significant role that China plays in Sri Lanka’s economy.
President Wickremesinghe also mentioned that the restructure of a further $14.7 billion in external commercial loans is in progress. This includes $2.18 billion from the China Development Bank. With these measures in place, Sri Lanka’s financial situation is expected to improve significantly.
The 2022 crisis in Sri Lanka sparked widespread public protests, which eventually led to the resignation of then-president Gotabaya Rajapaksa. The situation was dire, and the nation was on the brink of bankruptcy. However, President Wickremesinghe took over and has been working tirelessly to turn things around. He secured a $2.9 billion bailout from the International Monetary Fund (IMF) last year, and with the debt restructuring plan, he hopes that this will be the last time Sri Lanka has to seek assistance from the IMF.
It is worth noting that Sri Lanka has gone to the IMF, the international lender of last resort, on 16 previous occasions. This highlights the country’s struggle with debt and the need for sustainable financial management. The debt restructuring is a condition of the IMF bailout, and with this milestone achieved, Sri Lanka is on the right track towards economic stability.
In conclusion, the debt restructuring plan announced by President Wickremesinghe is a significant step towards reviving Sri Lanka’s economy. The $5 billion in savings will provide much-needed relief to the country and its people. With the support of bilateral lenders and the IMF, Sri Lanka is on its way to overcoming its financial challenges and emerging as a strong and prosperous nation. The future looks bright for Colombo, and we can all look forward to a better tomorrow.
