Sri Lanka Nearing Debt Restructuring Agreement to Exit Economic Crisis

Sri Lanka is poised to sign a debt restructuring agreement with creditor nations, marking a key step in overcoming a severe economic crisis. The agreement will enable renewed lending to the nation, which defaulted on foreign debt in 2022. Japan, India, and France play significant roles in the restructuring efforts.

Sri Lanka expects to sign a debt restructuring agreement with a group of creditor nations on Wednesday, Foreign Minister Ali Sabry told Reuters - a major step forward in the country's efforts to pull itself out of a severe economic crisis. President Ranil Wickremesinghe provided an update on the debt restructuring to members of his cabinet at a meeting held late on Monday, Sabry said via phone.

The deal will allow creditor nations to recommence lending to the South Asian island which slid into crisis in 2022 after defaulting on its foreign debt as foreign exchange reserves ran low. Sri Lanka owes about $5.9 billion in bilateral debt to 17 nations which are represented by the Official Creditor Committee (OCC). The vast majority of that debt is owed to Japan and India, which chair the OCC along with France.

A provisional agreement with the OCC was reached in November. Sri Lanka, which has roughly $37 billion in external debt, still needs to hammer out an agreement on $12.5 billion owed to private bondholders as well as a final deal with the Export-Import Bank of China on $4.2 billion in loans.

Aided by a $2.9 billion bailout package from the International Monetary Fund, Sri Lanka's economy is expected to grow 3% in 2024 after two years of contraction.

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