Bankrupt Sri Lanka to seek debt moratorium until 2028

On Wednesday, Sri Lanka’s president announced his pursuit of a moratorium on foreign debt repayments until 2028, responding to the aftermath of a government default that triggered an unprecedented economic crisis two years ago.
The economic turmoil, stemming from a decline in foreign exchange reserves, led to prolonged food and fuel shortages, sparking street protests and ultimately resulting in the removal of President Ranil Wickremesinghe’s predecessor in 2022.
Since the default, Sri Lanka has entered into an International Monetary Fund (IMF) rescue package and is diligently working to restore public finances. Wickremesinghe disclosed that ongoing discussions are in progress with both bilateral and private creditors to restructure the country’s substantial loans and bonds.
“We intend to secure temporary relief of not having to service our debts till the end of December 2027,” Wickremesinghe informed lawmakers in parliament. As of September 2023, Sri Lanka’s foreign debt amounted to $52.65 billion, according to central bank data.
To uphold the IMF bailout program, Sri Lanka must finalize a comprehensive agreement with foreign creditors, both bilateral and private bondholders, before the IMF’s economy review scheduled for June this year.
In December, the IMF disbursed a $337-million second tranche of its bailout loan following an “in principle” debt agreement with Beijing. China, the largest single bilateral lender to Sri Lanka, contributes about 10 percent to the island’s total foreign debt.
While the specific terms of the Chinese offer remain undisclosed, both Colombo and Beijing have assured the IMF that it is adequate to ensure the island’s debt sustainability. The IMF, however, has emphasized the necessity of formalizing the “in principle” agreement between the two countries before the upcoming review.
In response to the 2022 crisis, Sri Lanka’s economy has stabilized, marked by the ousting of then-president Gotabaya Rajapaksa amid civil unrest. Wickremesinghe has implemented measures such as tax hikes and subsidy cuts in alignment with IMF recommendations to bolster government revenue.