Sri Lanka’s parliament gave its approval on Saturday to a crucial domestic debt restructuring plan that is necessary to secure a $2.9 billion bailout from the International Monetary Fund (IMF).
With a majority of 122 votes in the 225-member parliament, the plan successfully passed. Last year, Sri Lanka faced its most severe financial crisis in over seven decades, marked by dwindling dollar reserves, triggering widespread protests, a foreign debt default, and the resignation of the former president.
To establish a sustainable debt framework and meet the conditions of the IMF agreement, Sri Lanka unveiled a highly anticipated domestic debt restructuring framework last Thursday. The plan aims to restructure a portion of the country’s $42 billion domestic debt.
State Minister of Finance Shehan Semasinghe emphasized the significance of the debt restructuring plan in meeting the IMF’s target of reducing the debt from the current 128% of GDP to 95% of GDP by 2023. He assured that the plan aims to protect banks, depositors, and pensions.
However, opposition parties have called for greater transparency in the implementation of the plan and stronger safeguards for pension fund holders. Opposition leader Sajith Premadasa criticized the restructuring, highlighting concerns that it disproportionately impacts pensioners.
The economy of the island nation has shown signs of improvement since securing the $2.9 billion bailout from the IMF in March. This support has helped address inflation, boost dollar inflows, and strengthen the country’s currency.
As part of the debt restructuring efforts, Sri Lanka is seeking a 30% reduction in bond payments from international bondholders and similar concessions from investors holding domestic dollar-denominated notes. Successful implementation of the domestic debt plan is crucial to advance negotiations with bondholders, as well as key bilateral creditors such as China, Japan, and India.
Sri Lanka aims to finalize debt restructuring talks by September, as it works towards achieving financial stability and overcoming its economic challenges.
