Sri Lanka also seeks to reduce nearly $17 billion of its $41.5 billion foreign debt through restructuring
Published Date – Friday 23rd March 30th at 06:00 AM
Colombo: Sri Lanka will keep banks out of its local debt restructuring plan because of the possible impact on deposits, officials said on Thursday, with much of the burden to be shared by the central bank and pension funds.
Sri Lanka’s cabinet a day earlier approved a plan to restructure nearly half of its $42.1 billion local debt following a bailout deal with the International Monetary Fund. A special parliamentary session has been called on Saturday to seek approval for the plan.
The government has declared a bank holiday until next week to prevent any speculatively triggered bank runs.
Central bank governor Nandaral Velasinghe said the bank’s holdings of treasury bills would be converted into longer-dated bonds, and pension funds have also proposed doing the same. If those funds are unwilling to be part of the program, they may have to pay a 30% tax instead of the 14% special treatment that is in effect now.
Sri Lanka is also seeking to reduce nearly $17 billion of its $41.5 billion external debt through restructuring.
Sri Lanka last year announced a moratorium on foreign loan repayments due to the severe foreign exchange crisis triggered by the COVID-19 pandemic, excessive government borrowing and the central bank’s efforts to stabilize the Sri Lankan rupee, where reserves are scarce.
Sri Lanka has sought support from the International Monetary Fund, which in March approved a rescue package that will release $3 billion in stages.
Sri Lanka suffered the worst economic crisis in its history last year, leading to severe shortages of food, medicine, fuel, gas and electricity. This led to massive street protests, forcing President Gotabaya Rajapaksa to flee the country and resign.
