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“SL debt restructuring to be finalized before elections”

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Resolution to USD13 bn debt stand-off 

Zambia and other countries still struggling

Bondholders looking for more details to formulate their debt relief proposal

Sri Lanka is aiming to negotiate a debt restructuring with holders of its defaulted US dollar bonds within “a couple of months”, its central bank governor said.

Dr. Nandalal Weerasinghe, head of the Central Bank, told the Financial Times that “we need to reach an agreement within a couple of months” on restructuring the $13bn of debt as he dismissed worries that negotiations have become bogged down.

Dr. Weerasinghe said he hoped the debt restructuring would be finalised before the elections “It’s so we have space. There’s a great understanding by the people of Sri Lanka of the need for these kinds of reforms and the continuation of these reforms. They know that if there’s a deviation, we’ll go into a worse situation.”

Two years after a currency crisis led Sri Lanka to default on its debt, President Ranil Wickremesinghe’s government is preparing for elections later this year amid signs the economy is recovering.

Zambia and other countries are also still struggling with delays to the restructuring of their debts because of the complexity introduced by the rise of China as a significant lender to the developing world and disagreements between Beijing and other creditors on debt relief. Last year Wickremesinghe’s government negotiated preliminary deals to restructure about $10bn in debts that were due to bilateral creditors led by China, Japan and India. It also secured a restructuring of local currency debts, helping Sri Lanka to continue accessing $3bn in rescue loans from the IMF. Sri Lanka needs such a deal to keep loans flowing and eventually return to market borrowing. The committee also complained of “a significant lack of transparency” from government creditors about details of the terms that they offered Sri Lanka.

Bondholders are looking for more details to formulate their debt relief proposal. Sri Lankan banks that own external debt also need a speedy resolution to the situation to revive lending to the economy, people familiar with their position said.

Despite the worries, prices of defaulted Sri Lankan bonds have rallied in recent months on expectations that a debt agreement will finally be reached this year. Sri Lanka will need to show it is still talking to bondholders in good faith to secure the next $330mn tranche of the IMF programme, which is up for review in March. It also faces the risk that it will be meeting some creditors in the courts rather than around a negotiating table. ( Financial Times of UK

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