During the two days of talks with the IMF authorities, President Anura Kumara Dissanayake reiterated Sri Lanka’s position that some of the rigid IMF conditions must be watered down to grant relief to the public.
| Photo Credit: AFP

The Sri Lankan government has announced a long-delayed debt restructuring agreement with its sovereign bondholders, in a major relief to the cash-strapped island nation.

In a statement on Friday (October 4, 2024), the Ministry of Finance said it reached an agreement with representatives of its international and local holders of International Sovereign Bonds (ISB) on September 19, 2024.

Sri Lankan authorities have “completed their consultations with Sri Lanka’s Official Creditor Committee (OCC) and the International Monetary Fund (IMF),” said the statement from the Treasury.

It added that the agreement is compatible with the comparative treatment principle.

The announcement came as the new National People’s Power (NPP) government led by President Anura Kumara Dissanayake expressed willingness to accept the agreement during the talks held with the visiting IMF delegation in Colombo on Thursday and Friday (October 3 and 4, 2024)

During the two days of talks, Mr. Dissanayake reiterated Sri Lanka’s position that some of the rigid IMF conditions must be watered down to grant relief to the public.

The IMF made external debt restructuring conditional to the $2.9 billion four-year facility clinched in March 2023 by the Ranil Wickremesinghe administration.

Sri Lanka has already obtained three tranches of about $360 million each under the Extended Fund Facility. The third tranche of the bailout package was released in mid-June as the Washington-headquartered global lender said on August 2, 2024, that Sri Lanka’s economic reform programme had yielded good results.

Days before the presidential elections, the then Mr. Wickremesinghe-led government, which undertook the laborious task of debt restructuring, announced an in-principle agreement with external commercial creditors for the restructuring of approximately $17.5 billion of external commercial debts.

Mr. Wickremesinghe, who was also the Finance Minister, was defeated in the presidential election last month.

The NPP in the run-up to the election had called the IMF deal a “death trap” and vowed to renegotiate it.

In April 2022, the island nation declared its first-ever sovereign default since gaining independence from Britain in 1948. The unprecedented financial crisis led Mr. Wickremesinghe’s predecessor Gotabaya Rajapaksa to quit office in 2022 amid civil unrest.

New Delhi:

Anura Kumara Dissanayake – Sri Lanka’s new Marxist President – has said he wants to avoid being “sandwiched” between India and China but recognises each as a “valued partner”, as he tries to resolve a financial crisis that has roiled his country since 2019 and led to a sovereign default in April 2022.

The former grassroots leader made it clear he intends to steer clear of geopolitical rumblings in South Asia or the Indian Ocean region. He acknowledged that each can provide much-needed financial aid but said he also wanted closer ties with the West, the Middle East, and even Africa.

The remarks were made in an interview with The Monocle, a global affairs and lifestyle magazine, in early September (before his election win was confirmed), in which he spoke about his foreign policy.

“There are many power camps within a multipolar system… but we won’t be part of that geopolitical fight, nor will we be aligned with any party. We also don’t want to be sandwiched, especially between China and India. Both are valued friends and we expect them to become closer partners.”

Mr Dissanayake, 55, a previously fringe Left leader, was catapulted into the limelight after winning the presidential election; he pulled over 42 per cent of the votes.

READ | Marxist Leader Anura Dissanayake Wins Sri Lanka’s Prez Polls

Rumoured close ties to China raised eyebrows, particularly in Delhi, which expressed concerns over Beijing’s growing influence on Sri Lanka, which sits on key shipping lanes in the Indian Ocean. Added to that, the South China Morning Post claimed Beijing expects Dissanayake will seek “maximum support” via foreign direct investment.

That report cited an economics professor from the University of Colombo as saying it is “highly probable” Mr Dissanayake would prefer to work with Beijing over Delhi.

However, Mr Dissanayake has, publicly at least, sought to reassure both Delhi and the United States, which too is wary of China’s growing influence. 

READ | The Rise Of Lanka’s Anura Dissanayake From Grassroots To President

Speaking to an Indian publication on voting day (on Saturday), Mr Dissanayake said India is “crucial” to his country’s hopes for economic stability and regional security.

“We will consider how our economic measures impact our country (while) recognising the importance of India’s support in our development efforts,” he told The Week.

Prime Minister Narendra Modi has spoken to Mr Dissanayake, stating he looks forward to working closely with him to further strengthen the Indo-Lanka multifaceted cooperation. Mr Modi’s post on X also contained a reference to Colombo’s “special place” in Delhi’s Neighbourhood First policy.

READ | PM Congratulates Dissanayake For Victory In Sri Lankan Polls

Mr Dissanayake responded, “I share your commitment… Together, we can work towards enhancing cooperation for the benefit of our peoples and the entire region.”

The Sri Lankan leader also played down fears – expressed by both Delhi and Washington – his country would become a military base for Beijing; as recently as last month three Chinese Navy ships were berthed at Colombo Port, at the same time as India’s front-line warship, INS Mumbai, docked.

“We are committed to maintaining our sovereignty and will not become subordinate to any power in this geopolitical race…” Mr Dissanayake said this month.

Delhi has played a key role – recognised by the International Monetary Fund, which has provided a $3 billion bailout programme – in guiding Colombo through the ongoing financial crisis, having provided aid – food, medicines, fuel, etc., – worth nearly $4 billion since the storm broke.

READ | IMF To Work With Sri Lanka’s New President On $3 Billion Loan

Mr Dissanayake, however, has said he will try to renegotiate the IMF’s loan conditions, some of which led to tax hikes and spending cuts, which many in Colombo said actually exacerbated the cost-of-living crisis that sparked the violent protests of 2019 and 2020. Reviewing the debt plan, though, risks delaying additional loans he needs to meet fiscal criteria before more funds are released.

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