Sri Lanka inks pacts with OCC, China to restructure debt

New Delhi: Sri Lanka on Wednesday signed separate debt restructuring agreements with the Official Creditors Committee (OCC), a group co-chaired by India, and China’s Exim Bank, with New Delhi saying it will continue supporting Colombo’s economic recovery through long-term investments. 

After the International Monetary Fund’s (IMF) approval of an extended fund facility for Sri Lanka in March 2023, the OCC was launched the following month to hold talks among the country’s bilateral creditors to finalise a plan for restructuring debt. 

After several rounds of engagements, the OCC – which is co-chaired by India, France and Japan – signed a memorandum of understanding (MoU) on debt restructuring on Wednesday. “This milestone demonstrates the strong progress made by Sri Lanka in stabilising its economy and moving towards reform and growth,” the external affairs ministry said in a statement. 

“India will continue to support Sri Lanka’s economic recovery, including by promoting long-term investments in its key economic sectors,” it said. 

As a co-chair of the OCC, India was “steadfast in its commitment to the stabilisation, recovery and growth of the Sri Lankan economy”. This was demonstrated by India’s financial support of $4 billion to Sri Lanka when the country experienced its worst financial crisis about two years ago. 

India was also the first creditor nation to convey financing assurances to the IMF, paving the way for Sri Lanka to secure the IMF bailout. 

While the agreement with the OCC was signed in Paris, the other agreement with China’s Exim Bank was inked in Beijing. People familiar with the matter said on condition of anonymity that two agreements were needed largely because China refused to agree on the same terms for restructuring Sri Lanka’s debt as the other creditors. 

Sri Lankan President Ranil Wickremesinghe recently told a business meet in Colombo that India had played a crucial role in his country’s economic recovery. “Having now survived two difficult years, I must acknowledge that this was possible because India gave us a loan of $3.5 billion. All that will be repaid,” he said. 

On Wednesday, Wickremesinghe conveyed his gratitude to Sri Lanka’s creditors, including India, Japan and France, as well as China, for their support for the successful conclusion of negotiations on debt restructuring. 

With these agreements, Sri Lanka will be able to defer all bilateral loan instalment payments until 2028, and it will have the chance to repay all loans on concessional terms within an extended period until 2043. While Sri Lanka spent 9.2% of its GDP on foreign debt payments in 2022, the two agreements will allow it to maintain debt payments at less than 4.5% of GDP between 2027 and 2032.