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Also seeks financial assistance from other partners to alleviate the suffering of the masses

The Ministry of Finance (MOF) yesterday announced the government’s new policy on servicing Sri Lanka’s external public debt pending the completion of the government’s discussions with the International Monetary Fund (IMF) and the preparation of a program comprehensive debt restructuring.

The Ministry of Finance said that recent events, including the effects of the Covid-19 pandemic and the fallout from hostilities in Ukraine, have eroded Sri Lanka’s fiscal position to such an extent that the continuation of normal servicing of public debt obligations external has become impossible.

“At the end of last month, the IMF assessed Sri Lanka’s debt stock as unsustainable. Although the government has taken extraordinary measures in an effort to stay current on all of its external debt, it is now clear that this is no longer a tenable policy and that a complete restructuring of these obligations will be necessary” , said the Ministry of Finance.

“Faced with this harsh reality, the government has requested assistance from the IMF to design an economic recovery program and emergency financial assistance. The government is also seeking financial assistance from its other multilateral and bilateral partners to alleviate the suffering that this extraordinary situation has imposed on the citizens of Sri Lanka. The government intends to continue its discussions with the IMF as soon as possible with a view to formulating and presenting to the country’s creditors a comprehensive plan to bring Sri Lanka’s external public debt to a fully sustainable position,” conceded the Ministry of Finance.

NOF further stated:

“It will therefore be the policy of the Government of Sri Lanka to suspend normal debt service on all affected debts (as defined), for an interim period pending an orderly and consensual restructuring of such obligations in a manner consistent with an IMF-supported economic adjustment program Government policy as discussed in this memorandum will apply to amounts of Covered Debt outstanding as of April 12, 2022. The new credit facilities, and any amounts disbursed under the facilities existing credit after that date are not subject to this policy and will be serviced as normal.”

“Holders of all Affected Debts are required to capitalize any amount of principal or interest falling due during this interim period, at an interest rate not exceeding the normal contractual rate applicable to this credit, until that a restructuring proposal can be presented to creditors for their consideration.

For record keeping purposes (and for the purpose of determining the outstanding principal amount of the Relevant Debts in connection with any possible restructuring), all principal and interest payments falling due after 5:00 p.m. (Sri Lankan time ) on April 12, 2022 in respect of the Debts concerned shall be deemed to have been capitalized (i.e. added to the principal amount outstanding of the debt concerned) and these amounts will bear interest during the interim period at the normal contractual rate applicable to this credit. Immediately after the scheduled due date for each amount of principal or interest affected by this policy, the Ministry of Finance (Ministry) will send to the creditor (or trustee or tax agent concerned) a written confirmation of the new principal amount of the Debt as shown in the Department’s records.

The department should be prepared to sign a simplified instrument confirming the capitalization of maturing amounts, as described above, for creditors who may require such documentation for regulatory or accounting purposes.

The holder of an affected debt who wishes to receive the Sri Lankan rupee equivalent of an amount due during the interim period instead of capitalization of that amount as described above should contact the Ministry as soon as possible, but at the latest one month from the day on which this amount became due. The Department will endeavor to accommodate such requests provided that it (i) is consistent with the Central Bank’s monetary policy and (ii) is feasible under the relevant credit documentation.

Affected debts

This policy applies to the following categories of external public debt of the Democratic Socialist Republic of Sri Lanka (Republic) and its public sector borrowers:

(i) All outstanding series of bonds issued in the international capital markets;

ii) All bilateral credits (government to government), excluding swap lines between the Central Bank of Sri Lanka and a foreign central bank;

(iii) All loan agreements or credit facilities denominated in foreign currency with commercial banks or institutional lenders (including such institutions owned/controlled by foreign governments) for which the Republic or a public sector entity is the obligor or the guarantor; and

(iv) Any sums due by the Republic or a public sector entity as a result of a call during the interim period on a guarantee (or equivalent financial commitment) issued in respect of the debt of a third party.

The government is taking the emergency measures described in this memorandum only as a last resort in order to prevent a further deterioration in the financial situation of the Republic and to ensure fair and equitable treatment of all creditors – commercial and bilateral – within the framework of the global restructuring of the debt which seems unavoidable.

The government has taken extraordinary measures to avoid resorting to these measures, but it is now clear that any further delay risks inflicting permanent damage on the Sri Lankan economy and causing potentially irreversible damage to the holders of public debts. outside the country.

The government sees these emergency measures as temporary expedients designed to preserve the financial status quo until, with the assistance of the IMF and other partners in Sri Lanka’s official sector, a comprehensive economic recovery program can be prepare.