In Sri Lanka, 13 months after its default, the government’s efforts to save the economy continue. The government, which received 3 billion dollars of financing from the IMF at the beginning of the year and 700 million dollars from the World Bank in the past hours, is working on new decisions.
The authorities, who took the opportunity to take a 5-day holiday, announced new measures within the bailout package. The Central Bank of the country asked for big concessions from investors regarding domestic borrowing. According to documents released after the meeting, Sri Lanka is demanding cuts of up to 30% from domestic investors in foreign bonds and foreign exchange-based lenders.
The Asian country is working on precautionary packages to pay off its $42 billion debt. Under the IMF program, the main target is to reduce the ratio of total debt to GDP to 95% by 2032. Sri Lanka aims to convert treasury bills into long-term bonds in line with this goal.
Details of the Recovery Plan
The plan of the government, which has suspended the financial system to prevent a bank run, is slowly emerging. Sri Lanka has announced different plans for foreign currency bonds it cannot pay:
- Option 1: Short-term quick payment with 30% principal deduction.
- Option 2: 15-year maturity without deduction of principal, first 9-year grace period, 1.5% interest rate.
- 3rd option: Conversion of debt amount to local currency, 10-year maturity, positive real interest guarantee.
Although there are differences in the positive real interest rate and maturity, the third option Sri Lanka offers to investors is very similar to the Currency Protected Deposit (KKM) in our country.
Among the largest creditors of the Western Asian country are countries such as China, India and Japan. Sri Lanka owes $24 billion bilaterally to these countries alone.
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