Sri Lanka is seeking to reach a deal with the bondholders of its defaulted dollar bonds in the next few weeks after a first round of direct talks failed to yield an agreement.
According to Bloomberg, an official statement from the Sri Lankan Government said that Sri Lanka reiterated its reservations regarding the structure of the macro-linked bonds, a bondholder-proposed instrument whose payout would vary depending on the nation’s economic performance.
The aforesaid statement said that Sri Lanka wants to reach common ground in the next few weeks ahead of the second review of the International Monetary Fund (IMF) programme by the Executive Board.
A regulatory filing from the Government said that the Steering Committee did not agree to an extension of restricted discussions with the bondholders, following the expiry of the current term.
The country is expecting to complete the debt restructuring by June this year while the IMF’s second review needs an agreement in principle with the bondholders to release the third tranche.
Sri Lanka is seeking a debt moratorium for $ 17 billion for its external debt from creditors till 2028, The repayment period will be 15 years, from 2028 to 2042, with the interest rate newly set at around 2% and no further debt reduction.
However, the Asian Development Bank (ADB) said that Sri Lanka could face external debt above 70% of GDP even after the completion of the debt restructuring and debt vulnerabilities will remain if the country does not implement debt management laws.
It further said that the resumption of growth in Sri Lanka hinges on the assumed continuation of reforms and better supply conditions as crucial reforms such as the Public Financial Management Act which will strengthen fiscal discipline and a debt management law to mitigate medium-term refinancing risks expected to be enacted in 2024 along with the completion of external debt restructuring.