Sri Lanka makes debt restructuring deal with Japan, other creditors
Cash-strapped Sri Lanka and its creditor nations, including Japan, reached a basic agreement on Wednesday on restructuring of its debt, a senior Japanese Finance Ministry official said.
The creditor nations and Sri Lanka will work out details and formalize the agreement in a memorandum of understanding, Masato Kanda, vice finance minister for international affairs, told reporters.
Some 20 countries — led by Japan, France and India — earlier this year established the framework for discussions on the course of action for Sri Lanka’s debt restructuring. China, Sri Lanka’s largest bilateral creditor and often criticized for employing “debt trap” diplomacy, joined as an observer.
Sri Lanka and the creditors said in a statement that they agreed on “the main parameters of a debt treatment” in line with the details of a rescue plan by the International Monetary Fund for Colombo.
The parameters include a time frame for Sri Lanka to repay which debt at what interest rate, according to Kanda, who declined to give further details.
Sri Lanka’s financial conditions increasingly worsened during the COVID-19 pandemic, and in 2022, the country defaulted on its external debt, estimated at $36.6 billion. As of June this year, $10.9 billion of that was owed to bilateral creditor nations.
In October, Sri Lanka agreed with the Export-Import Bank of China on restructuring $4.2 billion of debt.
China has been criticized for burdening poor nations, which need funding for their infrastructure and other projects, with huge debt payments and eventually taking control of assets when the countries fail to repay.
“We understand the conditions set by China are comparable to ours. We will work to restructure (Sri Lanka’s) debt as soon as possible in a framework that is transparent and fair,” Kanda said.
