Sri Lankan President Ranil Wickremesinghe announced a debt restructuring deal with India, France, Japan and China in a nationally televised address on Wednesday. The agreement marks a key step in the country’s economic recovery after defaulting on debt repayments in 2022.
Presidential Media Department of Sri Lanka/Handout | Anadolu Agency | Getty Images
president of sri lanka Ranil Wickremesinghe Debt restructuring deals with countries including India, France, Japan and China were announced in a nationally televised speech on Wednesday. The agreement marks a key step in the country’s economic recovery after defaulting on debt repayments in 2022.
Sri Lanka is in a International Monetary Fund The bailout package and debt deal are expected to reopen the door to bilateral deals and revive foreign projects that had stalled when the island nation defaulted.
“Sri Lanka reached a final agreement with our official bilateral creditors in Paris this morning. Likewise, we signed another agreement with the Export-Import Bank of China in Beijing today. … Sri Lanka wins,” Wickremesinghe said.
Sri Lanka declared bankruptcy in April 2022 and suspended repayments of about $83 billion in domestic and foreign loans due to a severe foreign exchange crisis, which caused severe shortages of essential goods such as food, medicine, fuel and gas, and led to hours-long power outages.
Sri Lanka’s crisis is largely caused by appalling economic mismanagement and the impact of the Covid-19 pandemic, which along with 2019 terrorist attacks devastated its vital tourism industry. The coronavirus crisis has also disrupted the flow of remittances from Sri Lankans working abroad.
Additionally, the then-government slashed taxes in 2019, draining state coffers just as the virus broke out. Foreign exchange reserves have plummeted, leaving Sri Lanka unable to pay for imports or defend its troubled currency, the rupee.
Wickremesinghe said that through these agreements, Sri Lanka will be able to defer all bilateral loan installments until 2028.
The agreements would involve $10 billion, according to a previous presidential office statement, but further details of the restructuring model were not immediately released.
In 2022, Sri Lanka will have to repay about US$6 billion in foreign debt every year, accounting for about 9.2% of its gross domestic product. The agreement will enable Sri Lanka to keep debt repayments below 4.5% of GDP between 2027 and 2032.
As Wickremesinghe addressed the nation, his supporters watched on big screens in the capital, Colombo, and celebrated the news by setting off firecrackers and eating traditional milk rice.
Economic turmoil led to a political crisis that forced then-President Gotabaya Rajapaksa to resign in 2022.
Sri Lanka has suspended debt repayments because the country lacks the foreign exchange needed to pay for imported fuel and other essential goods. The shortages led to street protests that changed the country’s leadership. The International Monetary Fund approved a four-year bailout package last March.
Wickremesinghe’s economic situation has improved and severe shortages of food, fuel and medicine have been greatly alleviated. But public dissatisfaction has grown with the government’s efforts to raise revenue through higher electricity rates and a hefty new income tax on professionals and businesses, part of an effort to meet International Monetary Fund conditions.
After Sri Lanka declared bankruptcy, all foreign loan projects were also suspended.
Wickremesinghe said on Wednesday that the new agreement would pave the way for the resumption of foreign-funded projects such as highways, light rail and airport development, as well as the launch of new projects.
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