Sri Lanka hopeful of completing debt restructuring in six months, says central bank chief

COLOMBO: Sri Lanka is committed to meeting all its debt repayments and is hoping to complete debt restructuring negotiations in the next six months, the country’s central bank chief P. Nandalal Weerasinghe said on Tuesday.

“There has been good progress this month with India already pledging financing assurances. We expect assurances from China and Japan soon,” Weerasinghe said at an event titled “Economic Outlook 2023”.

The island nation of 22 million people has grappled with challenges during the past year ranging from a shortage of foreign currency to runaway inflation and a steep recession - the worst such crisis since independence from Britain in 1948.

Sri Lanka is racing to secure a $2.9 billion bailout from the International Monetary Fund (IMF) but requires the backing of both China and India, its biggest bilateral creditors, to reach a final agreement with the global lender.

India last week told the IMF that it strongly supports Sri Lanka’s debt restructuring plan. “Once the IMF program is unlocked then we will start specific debt restructuring negotiations with both commercial and bilateral lenders,” the head of the apex bank said. “We hope to complete this process in six months.

The biggest uncertainty is the timeframe for the debt restructuring. It is only after debt sustainability is assured can Sri Lanka return to a sustainable growth path,“ he added.

India to back Sri Lanka’s debt restructuring plan

Weerasinghe added that good progress has been made in negotiations with the Paris Club creditor nations and other creditors.

On the domestic front, talks with local banks to reduce rates were ongoing but restructuring of domestic debt remains an uncertainty, he said.

On a separate note, Weerasinghe said Sri Lanka’s inflation would reduce at a faster pace in 2023 and expects it to reach single digits by end of 2023.

The central bank is aiming to bring down interest rates in line with inflation expectations and the process would be fast-tracked once the IMF programme is unlocked, he added.

Sri Lanka’s National Consumer Price Index (NCPI) eased year-on-year to 59.2% in December, after a 65% rise in November, data on Monday showed.