Sri Lanka said on Wednesday it had struck a restructuring deal with India, China and other countries to cover up to $10 billion of debt, a key step toward recovery after a 2022 financial crisis. President Ranil Wickremesinghe said the agreement is expected to revive stalled infrastructure projects, including a Japan-funded airport expansion and a new mass transit light rail in the capital.
Sri Lanka defaulted on its foreign debt in April 2022 after its foreign reserves ran out of cash and the unprecedented economic crisis forced then-President Gotabaya Rajapaksa to step down.
“Sri Lanka has completed negotiations with the Official Creditors Committee (OCC) and the Exim Bank of China,” Wickremesinghe said in a televised address to the nation in Sinhala.
“Sri Lanka won,” he said in English. He thanked the OCC, which included Japan, India, the United States, Canada and several European countries.
He said the agreement with the OCC countries was signed in Paris, while the agreement with China’s Exim Bank was signed in Beijing on Wednesday.
He said Sri Lanka had been granted a moratorium on repayments until 2028, but gave no further details.
His supporters in the capital Colombo burst firecrackers and distributed milk and rice in joy during his speech.
Wickremesinghe said the country was bankrupt when he took office nearly two years ago and he hoped the $2.9 billion bailout it received from the International Monetary Fund last year would be the country’s last.
Colombo has previously approached the International Monetary Fund (IMF) 16 times, as a last resort, with debt restructuring being a condition of an IMF bailout.
Wickremesinghe has doubled taxes, ended generous energy subsidies and prepared to sell loss-making state enterprises to boost state revenues under the deal.
Teachers’ strike over salary
India welcomed Sri Lanka’s agreement and pledged greater support.
“This milestone (agreement) reflects the strong progress made by Sri Lanka in stabilising its economy and moving towards reform and growth,” the Indian government said in a statement.
Bilateral lenders account for 28.5 per cent of Sri Lanka’s $37 billion outstanding foreign debt, according to fiscal data as of end-March.
Of the total amount of $10.58 billion borrowed from other countries, China’s share is $4.66 billion.
Japan’s contribution is $2.35 billion and India’s contribution is $1.36 billion.
The government said it was in talks with international bondholders but no agreement had been reached. The last round of talks in April ended in a deadlock.
Sri Lanka is unable to raise commercial loans until an agreement is reached with private lenders.
However, the moratorium on loans for ongoing infrastructure projects financed from other countries has been allowed to be lifted under agreements with bilateral lenders.
Thousands of government school teachers in Colombo went on strike on Wednesday demanding higher salaries, with police using water cannon and tear gas to disperse the protest.
Sri Lanka is due to hold a presidential election this year and opposition parties have vowed to renegotiate the terms of the IMF bailout.
Peter Breuer, head of the IMF’s Sri Lanka mission, said the fund was willing to listen to alternative proposals from rival political parties, but added that it was essential to stick to the parameters set out in the bailout.
He said that Sri Lanka has made good progress, but it is still not out of the crisis.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)