Sri Lanka is close to finalising a debt treatment plan with India and the Paris Club, sources familiar with the negotiations said, pointing to a likely moratorium of up to six years and a reduced interest rate during the repayment period.

“The discussions are at an advanced stage. A formal agreement on the terms can be expected very soon,” the Colombo-based source told The Hindu on Thursday, after a recent discussion among members of the Official Creditor Committee [OCC].

As many as 17 countries that have extended loans to Sri Lanka formed the Committee last year for ease of debt restructuring negotiations. China opted to stay out of the platform, but has been attending its meetings as an observer. Meanwhile, Colombo has repeatedly assured the OCC that it would negotiate repayment of Chinese loans on comparable terms.

Finalising agreements with the official creditors and reaching “in principle” agreements with the key private creditors would be “critical next steps” in Sri Lanka’s economic recovery plan, the International Monetary Fund (IMF) said on Thursday.

After defaulting on its nearly US$50 billion external debt in April 2022, Sri Lanka has been engaging with its diverse lenders to work out a debt treatment plan that is compatible with its pace of recovery. While Colombo is said to have made considerable progress in negotiating a deal with its bilateral creditors, private creditors holding the largest chunk of Sri Lanka’s foreign debt continue to pose a challenge.

Meanwhile, Sri Lanka got a step closer to receiving the next instalment of the International Monetary Fund’s (IMF) assistance, as part of the US$3 billion package it obtained last year, to recover from the unprecedented financial crash witnessed in the island nation in 2022.

Authorities reached a staff-level agreement with the Fund on the second review of its four-year Extended Fund Facility (EFF) arrangement. Upon completion of the IMF Executive Board’s review, Sri Lanka would have access to about US$337 million, taking IMF assistance it has received so far to US$1 billion, the Fund said in a statement.

Commending Sri Lankan authorities for “making good progress” in implementing an “ambitious” reform agenda, IMF officials told a media gathering in Colombo that the government had shown “commendable outcomes”, in curtailing inflation, ensuring reserve accumulation, and strengthening public finances.

(The Hindu)

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