Sri Lanka is seeking a loan repayment moratorium for its US$ 12 billion bilateral debts until 2028 during the ongoing talks in London with bondholders on debt restructuring as the country still grapples to emerge from the economic crisis, a Finance Ministry top official divulged.
A bondholders steering committee is expected to reach an agreement or sign a memorandum of understanding considering a proposal from the government to rework the overseas debt that has been in default since 2022.
The government is asking lenders to accept a plan to defer payments for five years and then pay down the debts from the beginning of 2028 through 2042, the top official said.
China has expressed willingness to continue supporting its financial institutions to actively negotiate with Sri Lanka, maintain close communication with other creditors in the International Monetary Fund, and assist Sri Lanka in financial relief, China’s foreign ministry said in a joint bilateral statement (with Sri Lanka) on Friday.
This statement was issued following the conclusion of Prime Minister Dinesh Gunawardena’s visit to China, where he discussed finalising a debt restructuring deal on the instructions of President
Ranil Wickremesinghe.
The two countries also signed nine new agreements amid Sri Lanka’s efforts to restructure and revive its economy.
Finance State Minister Shehan Semasinghe, who accompanied the Prime Minister, noted that Sri Lanka reached an agreement in principle with the EXIM Bank of China, and it could be extended further this year.
China’s Exim Bank had agreed to extend the US$4.5 billion debt servicing for two years starting in 2022 as an immediate contingency measure based on Sri Lanka’s request.
Sri Lanka’s largest bilateral debtors, China with $4.6 billion and India with $1.37 billion, are outside of the Paris Club.
India has already decided to go along with the Paris Club, but China does not want to get onto that platform.
China has given loans to several other countries in the world amounting to around $600 billion, and therefore it cannot consider Sri Lanka for preferential debt treatment, officials said.
Chinese authorities have already informed the government to resume the debt repayment from April 2024, and thereafter they can consider extending some relief.
Sri Lanka’s external debt stock stood at US$ 37.3 billion as of December 2023, bilateral debt at US$ 10.8 billion, multilateral debt at US$ 10.84 billion, and commercial loans at US$ 14.74 billion.