Sri Lanka is aiming to negotiate a debt restructuring deal with holders of its defaulted US Dollar bonds within “a couple of months”, Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe said.
Governor Dr. Weerasinghe told the Financial Times of London (FT), “We need to reach an agreement within a couple of months” on restructuring the US$ 13 billion of International Sovereign Bonds (ISB) debt as he dismissed concerns that negotiations with the ISB holders have become bogged down.
“There is a lot of interest from private creditors to finish this as soon as possible,” Dr. Weerasinghe said. “But because of the procedures it takes a certain time. We also want to do that fast,” he said.
Sri Lanka must “Ensure whatever proposals we have exchanged are consistent with the International Monetary Fund’s (IMF) debt sustainability analysis and also comparable with what we have been discussing with other creditors. That is a bit of a complicated process,” Dr. Weerasinghe told the FT.
The CBSL Governor said he hoped the debt restructuring process would be finalised before the elections due this year. “So we have space. There’s a great understanding by the people on the need for these kinds of reforms, and continuation of these reforms. They know that if there is a deviation, we will face a worse situation.”
The FT report stated that the resolution of Sri Lanka’s default has gone on much longer than expected, reflecting what investors see as the breakdown of the international framework for resolving sovereign debt disputes.
Last year, the Government led by President Ranil Wickremesinghe negotiated preliminary deals to restructure about US$ 10 billion in debts due to bilateral creditors led by China, Japan and India. It also engaged in local debt restructuring and streamlined taxation, enabling the country to get the second tranche of the US$ 2.9 billion Extended Fund Facility from the IMF. Sri Lanka needs a deal with ISB holders to eventually return to market borrowing and this will also help the IMF review process, due in March for the third tranche. FT reported that 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. Current prices of about 50 cents on the dollar imply a deal involving a 30 percent cut to face value, maturity extensions, lower coupons and settlement of interest accumulated since default, Bank of America analysts said.
