The Sri Lankan government has suspended normal debt service on all affected debt, for an interim period pending an orderly and consensual restructuring of these obligations in a manner consistent with an IMF-supported economic adjustment program.
Announcing an interim policy regarding the servicing of Sri Lanka’s external public debt, the Ministry of Finance said the government’s policy will apply to amounts of relevant debts outstanding as of April 12, 2022.
However, new credit facilities and all amounts disbursed under existing credit facilities after that date are not subject to this policy and must be drawn down normally.
This policy applies to the following categories of external public debt of Sri Lanka (Republic) and its public sector borrowers:
(i) All outstanding series of bonds issued in the international capital markets;
ii) All bilateral credits (government to government), excluding swap lines between the Central Bank of Sri Lanka and a foreign central bank;
(iii) All loan agreements or credit facilities denominated in foreign currency with commercial banks or institutional lenders (including such institutions owned/controlled by foreign governments) for which the Republic or a public sector entity is the obligor or the guarantor; and
(iv) Any sums due by the Republic or a public sector entity as a result of a call during the interim period on a guarantee (or equivalent financial commitment) issued in respect of the debt of a third party.
The holders of all debts concerned are required to capitalize any amount of principal or interest coming due during this interim period, at an interest rate not exceeding the normal contractual rate applicable to this credit, until that a restructuring proposal can be presented to creditors. for their consideration.
The holder of an affected debt who wishes to receive the Sri Lankan rupee equivalent of an amount falling due during the interim period instead of the capitalization of that amount as described above, should contact the Ministry as soon as possible, but no later than one month from the day on which this amount became due.
The government sees these emergency measures as temporary expedients intended to preserve the financial status quo until a comprehensive economic recovery program can be prepared with the assistance of the IMF and other official Sri Lankan sector partners. . To this end, the government plans and intends to:
(i) advance its discussions with the IMF on an economic adjustment program as quickly as possible,
(ii) publish on the ministry’s website all debt sustainability analyzes and similar assessments prepared by IMF staff or Sri Lanka’s own financial advisers under the economic adjustment program,
(iii) engage in good faith discussions with representatives of bilateral and commercial creditors regarding the features of a comprehensive external debt restructuring program consistent with the parameters of the IMF-approved economic adjustment program and seek the views of such parties on the elements of such an external debt restructuring programme, and
(iv) be guided in the design and implementation of this external debt restructuring program by the principles of equity between creditors (both between different groups of creditors and between individual members of each group of creditors ) and total transparency.