Sri Lanka weighs “Favoured Creditor Clause” to speed up debt fix

Tuesday, 20 December 2022 02:39 - - {{hitsCtrl.values.hits}}

According to Bloomberg, Sri Lanka is considering a “Favoured Creditor Clause” to fast track external debt negotiations. Sri Lanka may use a special clause to expedite its debt-restructuring negotiations – prolonged talks risk delaying a crucial bailout from #IMF.

The ‘Most Favoured Creditor (MFC)’ could help with doubts among other creditors that China (holds 52% of Sri Lanka’s bilateral debt) could be offered better terms.

Such a clause would ensure the same terms are extended to all creditors even if an agreement with them has been sealed before a deal is reached with China.

This clause is intended to deflate any expectation on the part of other lenders that by delaying engagement in the process they may be able to secure a better deal down the road.

If Sri Lanka introduces this clause, it may be the first time that it is used in a debt-restructuring involving China.