Sri Lanka reached a debt restructuring agreement with bondholders, the crisis-hit country will get this help

Sri Lanka's Finance Minister Shehan Semasinghe on Thursday said the island nation has reached a debt restructuring agreement with international sovereign bondholders after prolonged negotiations. In a statement, state Finance Minister Semasinghe said an agreement was reached on restructuring terms on Wednesday, completing Sri Lanka's debt restructuring process.

"ISBs (international sovereign bonds) account for USD 12.5 billion of the total external debt of USD 37 billion," Semasinghe said. This agreement is an important step in our efforts to restore debt sustainability." He said the agreement with private bondholders was subject to the approval of the official creditor committee of other nations, including India.

"This is another important milestone in our journey towards strengthening and reviving the economy," he said. Officials said advance payments to ISB holders at a 28 percent discount have been agreed to begin from September this year.

With this, Sri Lanka's debt restructuring process has been completed, which was a condition under the USD 2.9 billion International Monetary Fund (IMF) bailout package extended over a four-year period to March 2023, officials said.

On June 26, the process was concluded with the signing of debt restructuring agreements with bilateral lenders, including India and China, in Paris. President Ranil Wickremesinghe called it as a significant milestone in restoring foreign confidence in the debt-ridden economy.

Sri Lanka declared itself in default in mid-April 2022 after exhausted its foreign exchange reserves. Due to the halt in debt services, multilateral creditor nations and private lenders were unable to give additional finance to the country.Following last week's statement on bilateral debt restructuring, the government received criticism from the main opposition, who said that the government had failed to reach the best solution for the country.

Rejecting the opposition's criticism of the debt restructuring as wrong, President Wickremesinghe said that no bilateral creditor would agree to a reduction in the principal amount. Instead, concessions are allowed through extended repayment periods, grace periods, and lower interest rates. 

A two-day parliamentary debate on the issue was postponed as the opposition demanded the submission of the agreements. Wickremesinghe said he would submit all agreements and documents regarding the debt restructuring to the parliamentary committee after reaching an agreement with private bondholders.