By Uditha Jayasinghe
COLOMBO (Reuters) – Sri Lanka will announce later this week the rebalancing of its domestic debt to meet international The goal set by the International Monetary Fund (IMF) and aims to turn around its economy hit hard by the financial crisis.
A severe shortage of dollars has put the island nation 22 in dire straits since British independence last year 2022, Millions were plunged into the worst financial crisis yet, triggering the first foreign debt default in May 2022.
What happened so far?
Sri Lanka pledged to put its massive debt burden on a sustainable path and received a $2.9 billion bailout from the IMF in March. Domestic debt restructuring is needed to help the country meet the IMF’s program target of reducing total debt to 2022% of GDP
What will be included in domestic debt restructuring?
The forthcoming framework will cover a portion of the country’s $900 million 36 domestic debt, of which is based on According to the latest data from the Treasury Department, $800 million is national debt.
“Debt restructuring may not include a principal reduction. Most likely a maturity extension, only a small one for a specific group of investors,” said Udeeshan Jonas, chief strategist at equity research firm CAL Group. Coupon cuts. “
Why is domestic debt restructuring critical?
Domestic debt redoing could also create momentum for foreign debt renegotiation around $1 billion foreign debt, including $1 billion USD external debt billion, held by bondholders and bilateral creditors such as China, Japan and India.
Sri Lanka has set a target of completing debt restructuring negotiations by September target to coincide with the first review of its IMF program.
When might the redo be announced?
President Ranil Wicklema Sources in Ranil Wickremesinghe’s office told Reuters that the president, who is also finance minister, is expected to present to parliament this weekend a domestic debt restructuring framework to be drawn up by the island’s central bank and finance ministry.
Two A Treasury source said the document would be presented to Cabinet for approval later on Monday.
How to prevent potential fallout?
In order to curb any potential market volatility, Sri Lanka announced a five-day holiday from June to July 3rd, and plans to get approval from the Cabinet and Parliament The restructuring plan, Central Bank Governor P. Nandalal Weerasinghe said on Sunday.
The special bank holiday also allows for any losses from bond sales, which analysts say will be confirmed in the third quarter of the year.