COLOMBO: As part of an IMF-backed strategy to mitigate and manage the island nation's debt, Sri Lanka would independently negotiate debt restructuring with India, China, and the Paris Club, President Ranil Wickremesinghe said parliament on April 26.

As the nation struggles with its worst economic crisis,  Wickremesinghe told Parliament that Sri Lanka is considering restructuring its domestic debt concurrently with its external debt.

 Wickremesinghe, who is also the Finance Minister, declared that Sri Lanka needs to restructure its debt, stating that its overall debt is USD 83.6 billion. Domestic debt is USD 42 billion, and foreign debt is USD 41.5 billion. The International Monetary Fund (IMF) granted Sri Lanka a USD 2.9 billion bailout package last month to help it deal with its enormous debt load.

The Washington-based international lender required Sri Lanka to restructure its debt before providing the USD 2.9 billion rescue. He emphasised that no final decisions regarding the restructuring of domestic debt had been taken and that separate talks with China, India, and the Paris Club were still ongoing.

A debate on the IMF bailout package was introduced in Parliament by Wickremesinghe with the statement, "China is expecting to work separately." "Then, on one side, we're talking with the Paris Club and India. He stated, "On the other side, we'll talk to China.

Negotiations for the restructuring of domestic debt have begun, said Wickremesinghe, adding that Sri Lanka will begin talks with creditors abroad.

"We must carefully weigh every factor. We won't allow anyone to suffer damage. There shouldn't be any preconditions in local debt restructuring discussions, the President stated, adding that some institutions claim they are unable to face this.

However,  Wickremesinghe stated that Sri Lanka would have to make judgements regarding the restructuring of its domestic loans after discussions with foreign debtors were launched. "The IMF deal is expected to reduce the country's foreign debt by USD 17 billion," he said. In order to fulfil the deal with the IMF, the President announced that new legislation, including a new public finance law and a revenue authority law, will be passed soon.

Following financial guarantees from the creditors, the IMF's Executive Board granted a 48-month extended arrangement under its Extended Fund Facility (EFF) with an amount of SDR 2.286 billion to Sri Lanka.

Sri Lanka, which received its first payment from the USD 3 billion bailout plan, has already paid a portion of the line of credit it received from India at the beginning of last year, just before it announced its financial default. After extensive deliberations over Colombo's unmanageable debt, the IMF bailout (the 17th in Sri Lanka's history) was granted.

As per  official government figures, Sri Lanka owes bilateral creditors USD 7.1 billion, of which USD 3 billion is owed to China, USD 2.4 billion to the Paris Club, and USD 1.6 billion to India.

Due to a serious lack of foreign exchange reserves, the island country had an extraordinary financial crisis in 2022, the worst since gaining independence from Britain in 1948. This crisis led to a significant political and humanitarian disaster on the island.

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