Sri Lanka is set to save $5 billion as a result of restructuring its bilateral debt, a significant portion of which is owed to China, through reduced interest rates and extended repayment periods, according to the president's statement on Tuesday.
The country defaulted on its foreign loans in 2022 amid an unparalleled economic crisis that led to prolonged shortages of food, fuel, and medicine. President Ranil Wickremesinghe announced that an agreement reached last week has secured a debt moratorium until 2028, extended loan terms by eight years, and lowered interest rates to an average of 2.1 percent.
Wickremesinghe noted that while China, the largest single creditor, and other bilateral lenders did not agree to reduce the principal of their loans, the revised terms will still benefit Sri Lanka. "Through the restructuring measures we have agreed upon, we will achieve a saving of $5.0 billion," Wickremesinghe stated in his inaugural address to parliament following the debt deal.
Some of Sri Lanka's loans from China carry high interest rates, reaching nearly 8.0 percent, in contrast to those from Japan, the second-largest lender, which are below 1.0 percent. Sri Lanka has negotiated separate agreements with China and other bilateral creditors, including Japan, France, and India. According to March treasury data, bilateral creditors represent 28.5 percent of Sri Lanka's $37 billion in outstanding foreign debt, excluding government-guaranteed external loans. China's share amounts to $4.66 billion out of the $10.58 billion borrowed from other countries.
Wickremesinghe anticipates completing the restructuring of an additional $14.7 billion in external commercial loans, including $2.18 billion from the China Development Bank, in the near future. The 2022 crisis led to months of public demonstrations that culminated in the resignation of former president Gotabaya Rajapaksa after his residence was stormed by an enraged crowd. Wickremesinghe, who took office amid the bankruptcy of the nation, hopes that the $2.9 billion International Monetary Fund bailout secured last year will be the last for the island. Colombo has previously sought IMF assistance on 16 occasions, and the debt restructuring is a condition of the IMF bailout.
