Sri Lanka Secures 2028 Grace Period and Lower Interest Rates in Debt Restructuring

COLOMBO (News 1st); President Ranil Wickremesinghe announced significant progress in Sri Lanka’s debt restructuring efforts, highlighting key agreements reached with the Official Creditor Committee, co-chaired by India, Japan, and France, alongside the Exim Bank of China.

Key points of the agreements include:

Grace Period:Sri Lanka has secured a grace period until 2028 for repaying the principal loan.

Interest Rate Reduction: The interest rates have been significantly reduced, with the new rate set at 2.1% or lower.

Extended Repayment Period: The repayment period has been extended by eight years, ensuring the debt is fully settled by 2043.

Flexible Repayment Terms: There is flexibility to gradually increase principal loan repayments, allowing deferred loan servicing costs. This has resulted in Sri Lanka retaining a debt service of USD 5 billion.

Economic Positioning: Through economic restructuring, rebuilding reserves, creating fiscal buffers, and enhancing debt repayment capacity, Sri Lanka aims to strengthen its economy for future debt repayments, creating considerable financial flexibility.

By March 2023, Sri Lanka secured approval for the IMF Extended Credit Facility and received the first installment on March 20, 2023. Following a review of progress, the second installment was received on December 12, 2023, and the third on June 12, 2024.

President Wickremesinghe also addressed various opinions circulating about debt write-off, loan grace periods, and restructuring.

"Many people in our country suggest that we should seek concessions on foreign loans without making any commitments. However, this is neither practical nor feasible according to international practices. Just as we must be responsible with the tax money and savings of our own citizens, we must also make commitments when borrowing the tax money and savings of other countries. If we fail to make a commitment, the citizens of those countries will not support us," said the President.

He emphasized the complexities of debt restructuring, stating, "Debt restructuring is challenging for creditors, debtors, and mediators alike. Official bilateral creditors never reduce the principal amount. Concessions come in the form of extended repayment periods, grace periods, and reduced interest rates."