Sri Lanka’s New Government Approves Controversial $14.7 Billion Debt Restructuring
Sri Lanka’s new government has given the green light to a contentious restructuring plan for $14.7 billion in foreign commercial credit, initially agreed upon by the previous administration. Former leader Ranil Wickremesinghe had struck a deal with international sovereign bondholders and the China Development Bank just before losing the election last month.
Despite initial calls for better terms by President Anura Kumara Dissanayake, the government has decided to honor the deal following discussions with an IMF delegation. The debt restructuring is crucial for rebuilding the country’s economy, which suffered a 7.8% contraction in 2022. The agreement includes a 27% principal reduction and an 11% interest cut for private creditors.
With Sri Lanka facing a foreign debt default in 2022 due to a shortage of foreign exchange, this restructuring is seen as a vital step towards economic recovery. While the new government has endorsed the plan, it still needs parliamentary approval. Austerity measures imposed under an IMF bailout have stabilized the economy, although they have also caused hardships for low-income citizens.