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12 April 2024

Sri Lanka official creditor committee yet to form as debt talks ongoing

By Reuters

Sri Lanka's authorities continue to exchange information with bilateral creditors but a formal committee to restructure the country's foreign debt is not yet in place, a source close to the Finance Ministry told Reuters.

The island nation held a third round of talks with representatives from creditor countries such as China, Japan and India on Dec. 15 as it aims to restructure its debt amid the worst economic crisis since independence from Britain in 1948.

"This (meeting) was extremely well attended with over 100 attendees representing the official creditors," the source said, adding that Sri Lanka government officials also provided updates on their debt management strategy and the implementation of measures under an International Monetary Fund (IMF) programme.

Sri Lanka said in October it aimed to almost double tax revenue to around 15% of gross domestic product by 2026 from 8.5% now - an essential step to unlock IMF funding.

Talks with bilateral creditors started after the country secured a $2.9 billion staff-level agreement with the Washington-based lender in September. But the money will not flow until the fund's executive board approves the deal, a move that requires prior financial assurances from bilateral lenders.

The attempt at a debt restructuring comes after the effects of years of economic mismanagement were amplified by the fallout from the pandemic.

The country's State Minister of Finance Shehan Semasinghe said in a tweet dated Dec. 15 that the government aimed to "maintain an equal, comparable and transparent debt treatment policy" with its creditors.

China is Sri Lanka's largest bilateral creditor accounting for close to 20% of its overseas debt. Sri Lanka's total external debt amounts to $37.6 billion, according to calculations by the China Africa Research Initiative (CARI)