• Govt. hopes to secure ‘financing assurances’ from all creditors by mid-Dec.
• To expedite the process, formation of unique ‘ad-hoc coordination platform’ mooted for all bilateral creditors
• Financing assurances key to secure IMF Board approval for $ 2.9 b program since SL’s debt is deemed unsustainable
• $ 46.6 b in foreign currency denominated debt as at end June 2022 or 70% of GDP, up from 54% by end of 2021
• Of total, $ 37.9 b held by Central Government; $ 5.5 b of Guaranteed State-owned 
• enterprise debt and $ 3.2 b in CBSL debt
• China accounts for 52% or $ 7.3 b of bilateral debt followed by Japan and India

The Government on Friday expressed hope to obtain all the required “financing assurances” from public and private partners by mid-December before IMF Board Approval of the $ 2.9 billion four-year Extended Fund Facility (EFF) program. 

Financing assurances from bilateral creditors are required as a prerequisite to the IMF Board adoption of the Program.

The IMF does not lend to countries whose debt is deemed unsustainable, requiring Sri Lanka to undertake an upfront comprehensive debt treatment. In practice, this requires financing assurances to be given by the bilateral creditors, resulting in a sufficient level of comfort to the IMF that bilateral creditors will support Sri Lanka’s efforts to restore public debt sustainability

Bilateral financing assurances are a commitment from official bilateral creditors to grant Sri Lanka a debt treatment compatible with the macroeconomic framework and debt sustainability constraints underpinning the contemplated IMF program.  Private financing assurances are considered as obtained by the IMF once Sri Lanka is making a “good faith” effort to reach a collaborative agreement with its private creditors, defined as: Engaging in early dialogue; sharing relevant information on a timely basis and giving creditors the early opportunity to provide input in the framework underpinning the debt restructuring.

Recognising the criticality of early receipt of financing assurance, the Government is promoting the formation of an ad-hoc bilateral creditor coordination platform enabling direct communication between all bilateral creditors.

Key principles with which debt relief will be sought are transparency, good faith efforts for a collaborative process, fair and comparable treatment across all creditors and consistency with IMF debt sustainability analysis.

In its first formal presentation to creditors on Friday by Central Bank Governor Dr. Nandalal Weerasinghe and Treasury Secretary Mahinda Siriwardena, the Government said: “The most effective way to obtain the financing assurances quickly is the creation of an ad-hoc bilateral creditor coordination platform allowing the official bilateral creditors to give their financing assurances to the IMF collectively after having debated among themselves, with the IMF and the Government of Sri Lanka on the general contours of the debt treatment required to support the restoration of debt sustainability.”

Benefits of such structure include: Deliver financing assurances and validating the IMF program through a fast-track solution, allowing Sri Lanka’s economy to recover; position all bilateral creditors on an equal footing for accessing relevant information; enable a suitable forum for the negotiation of the bilateral debt restructuring; offer a forum for discussions on emergency credit lines amongst creditors themselves and increase trust and build an environment for constructive discussions.

Total foreign currency denominated debt

The Government revealed $ 46.6 billion in foreign currency denominated debt outstanding as at end June 2022 amounting to 70% of GDP, up from 54% by end of 2021. Of the $ 46.6 billion, $ 37.9 billion was Central Government debt and $ 5.5 billion in Guaranteed State-owned enterprise debt and $ 3.2 billion of Central Bank debt.

Central Government and Guaranteed SOEs’ external public debt has a broad variety of bilateral creditors, for $ 13.8 billion in overall bilateral debt – $ 9.9 billion in direct exposure and $ 4.2 billion in indirect exposure.

In the bilateral league, China accounted for 52% or $ 7.3 billion, Japan was number two at $ 2.7 billion or 19.5% and India was third at 12% or $ 1.68 billion as of end June 2022.

Separately, the outstanding International Sovereign Bonds placed with private creditors was $ 19.2 billion as at end June 2022.

Progress so far

The roadmap unveiled on Friday was viewed by some analysts as challenging.

However, the Government said the Staff-Level Agreement (SLA) with the IMF allows Sri Lanka to accelerate and intensify engagement with all categories of creditors.

In terms of official creditors, the Government has initiated engagement with official creditors, including the largest  bilateral creditors and the Paris Club. They were also provided updates on the ongoing process, including a post-SLA  process update.

In terms of private creditors, the Government said it initiated engagement with appointed advisors of the international  and local committees of sovereign bondholders and published a creditor update presentation, disclosing publicly debt data and information on the process.

Expected timeline for the Debt Restructuring process

Government kicks off identification  of $ 12.7 b  Lankan ISB holders