Japan, India, and France on April 13 unveiled a plan to initiate a negotiation process with Sri Lanka’s creditors to coordinate the restructuring of Sri Lanka’s debt as the country seeks to resolve its economic crisis.
The plan was announced following a high-level meeting between officials from the three countries on the sidelines of International Monetary Fund (IMF) and World Bank meetings in Washington. Sri Lankan President Ranil Wickremesinghe also participated virtually.
Finance Minister Nirmala Sitharaman reaffirmed India’s commitment to supporting Sri Lanka in dealing with its economic crisis while emphasizing cooperation among creditors to ensure “transparency and equality” in the negotiations.
Speaking to reporters, Emmanuel Moulin, the French director general of the Treasury, said they seek to hold the initial round of discussions with creditors at the earliest date possible.
Japanese Finance Minister Shunichi Suzuki said the platform is open to all creditors and expressed hope that China, Sri Lanka’s biggest bilateral creditor, will also join the effort.
“To be able to launch this negotiation process gathering such a broad-based group of creditors is a historical outcome,” Suzuki said, hoping the platform will be “a model case” of debt restructuring.
Sri Lanka owes $7.1 billion to bilateral creditors, according to official data from its government, with $3 billion owed to China, followed by $2.4 billion to the Paris Club and $1.6 billion to India.
The government also needs to renegotiate more than $12 billion of debt in Eurobonds with overseas private creditors and $2.7 billion on other commercial loans.
IMF Approves $3 Billion Bailout
The IMF earlier approved a $3 billion bailout package for Sri Lanka over four years under the Extended Fund Facility, of which $333 million will be disbursed immediately, according to its statement.
The IMF aims to restore Sri Lanka’s “macroeconomic stability and debt sustainability, mitigate the economic impact on the poor and vulnerable, safeguard financial sector stability, and strengthen governance and growth potential.”
“Sri Lanka has been facing tremendous economic and social challenges with a severe recession amid high inflation, depleted reserves, an unsustainable public debt, and heightened financial sector vulnerabilities,” IMF Managing Director Kristalina Georgieva said.
“For Sri Lanka to overcome the crisis, swift and timely implementation of the EFF-supported program with strong ownership for the reforms is critical,” she added.
Georgieva emphasized the need for “ambitious revenue-based fiscal consolidation” to restore fiscal and debt sustainability while protecting the poor and vulnerable.
“For the fiscal adjustments to be successful, sustained fiscal institutional reforms on tax administration, public financial and expenditure management, and energy pricing are critical,” she said.
