Debt restructuring deal gives breathing space for Sri Lanka's economic revival: President Wickremesinghe

COLOMBO: President Ranil Wickremesinghe on Tuesday said “substantial progress" has been achieved in Sri Lanka's debt restructuring, which he said provided the much-needed breathing space for the cash-strapped country to transform its bankrupt economy into a resilient and stable one.

Briefing Parliament on the country’s resulting benefits of the correct course of action, President Wickremesinghe also countered the Opposition's criticism of the debt restructuring agreement with major bilateral creditors and promised to table all agreements and documents related to it to a Parliamentary panel.

In April 2022, the island nation declared its first-ever sovereign default since gaining Independence from Britain in 1948. The unprecedented financial crisis led President Ranil Wickremesinghe's predecessor Gotabaya Rajapaksa to quit office in 2022 amid civil unrest.

Earlier last week, President Wickremesinghe announced that debt restructuring agreements were finalised with bilateral lenders, including India and China, in Paris on June 26 and described it as a “significant milestone” for bolstering international trust in the debt-ridden economy.

On Tuesday, while making a special statement in Parliament, Wickremesinghe said: “Sri Lanka’s external debt now totals USD 37 billion, which includes USD 10.6 billion in bilateral credit and USD 11.7 billion in multilateral credit. The commercial debt is USD 14.7 billion, of which USD 12.5 billion is in sovereign bonds.”

The debt restructuring aims at making the debt sustainable, freeing up funds for public services, Wickremesinghe, who also holds the portfolio as the finance minister, said.

“This pivotal moment, however, must not be squandered. This breathing space should not be wasted,” news portal NewsFirst.lk quoted him as saying.

“In the past, Sri Lanka's economic growth was dominated by the non-tradable sector. During this period, particularly post-war, the economy expanded but tax revenue and exports as a share of GDP declined. The capacity to service debt continued to diminish.

"To reverse the trend, we must transform Sri Lanka into an economy, where growth is driven by non-debt creating foreign exchange inflows,” the portal quoted him as saying.

The President said that Sri Lanka must now pursue a high growth trajectory of at least seven per cent GDP per annum, and though ambitious, this target is achievable, as demonstrated by nations like Vietnam.

Achieving two decades of seven per cent growth could potentially quadruple Sri Lanka's GDP from approximately USD 85 billion to around USD 350 billion, said Wickremesinghe.

Dismissing the Opposition's criticism of debt restructuring as “inaccurate,” Wickremesinghe argued, “No bilateral creditor would agree to a reduction of principal amount. Instead, concessions are allowed through extended repayment periods, grace periods and lower interest rates.”

The president said the agreements with bilateral creditors include extending principal repayments until 2028, maintaining interest rates below 2.1 per cent, and extending the full debt resettlement grace period until 2043.

President Wickremesinghe said he would submit all agreements and documents regarding debt restructuring to the Public Finance Committee of Parliament, emphasising the need for thorough scrutiny and broad attention to the matter, his office posted on X.

“The country is now able to secure foreign loans and resume projects that had been halted midway due to lack of foreign funding,” Wickremesinghe said.

“Although some argue debt restructuring is pointless as credit ratings haven’t improved, the President said this is incorrect, adding that international financial institutions work to improve credit ratings based on the success of the debt restructuring process and its economic indicators,” the President’s Media Division said in a post on X.

“Based on agreements reached on debt restructuring, the repayment of the principal loan amount can be incrementally increased, thereby deferring debt servicing costs. President Ranil Wickremesinghe mentioned that Sri Lanka will have remaining debt service of USD 5 million,” it added on X.

The President also acknowledged the short-term credit assistance provided by India and Bangladesh during that period. “At that stage, we were helped by two friendly nations -- India and Bangladesh -- who gave us short-term credit assistance. No other country was permitted to extend long-term loans,” he said.

In his speech, the President also highlighted the specific details of the agreements reached with the official creditor committee co-chaired by India, Japan, France and China’s Exim Bank on debt restructuring and noted that the agreements include a grace period for principal repayment extended until 2028.

“The interest rates have been maintained at or below 2.1 per cent and a full debt repayment grace period was extended until 2043,” he was quoted as saying by news portal Adaderana.lk.

Wickremesinghe's statement was followed by the main opposition leader, Sajith Premadasa, who reiterated that the government has failed to secure the best possible deal in the debt restructuring process.

The planned two-day debate in Parliament on the deal was, however, postponed as Opposition members protested the lack of transparency regarding the agreements reached.