Crisis-hit SL seeks debt moratorium till 2027 to ease debt burden on economy

Colombo: Financially-broke Sri Lanka seeks a debt default till 2027 from both local and international lenders to ease the debt burden on the country's GDP.

Sri Lanka President Ranil Wickremesinghe announced in Parliament that by 2022, the country was slated to repay nearly $6 billion in foreign debt annually, amounting to about 9.5 per cent of the GDP, a considerable strain for any nation.

The President claimed that the South Asian island nation faces a significant burden of debt.

"Currently, we are actively engaged in discussions regarding the restructuring of all loans, including domestic and foreign loans. We are optimistic that these negotiations will reach a successful resolution soon. Our goal is to obtain temporary relief from debt defaults from 2023 to 2027," Wickremesinghe said presenting its plans to repaying the loans in the period from 2027 to 2042.

"Through successful negotiations for debt restructuring, we aim to alleviate this burden by reducing the annual foreign debt payments to 4.5 per cent of the GDP, a substantial halving of the previous percentage," President Wickremesinghe said in a special statement in the Parliament on Wednesday.

Going through a severe economic crisis and a dollar crunch, Sri Lanka defaulted on its foreign debt in May 2022 and declared that the country was bankrupt.

At the end of September, Sri Lanka's overall debt was at $91 billion.

To help temper sky-rocketing inflation and increase foreign exchange reserves, Sri Lanka struck a $2.9 billion bailout package with the International Monetary Fund in March last year.

In April 2023, India together with Japan and France came to help debt-ridden Sri Lanka initiating a common platform for talks among bilateral creditors to coordinate restructuring Sri Lanka's debt.

However, China, Sri Lanka's biggest single bilateral lender, accounting for around 10 per cent of total foreign debt stayed away from the joint effort.

As of June 2023 China held 52 per cent of Sri Lanka's bilateral debt while Japan, the second largest creditor held 20 per cent, followed by India at 12 per cent and France at three per cent.