Sri Lanka’s Deal with Creditor Nations

On June 26th, 2024, Sri Lanka signed a deal with creditor nations to restructure about USD5.8 billion in bilateral debt, in a move that would help stabilise its crisis-hit economy.

Key Points

Officials from the cash-strapped South Asian nation signed the agreement in Paris with the Official Creditor Committee (OCC), which is co-chaired by Japan, India, and France.
Sri Lanka is under an International Monetary Fund bailout program and the debt treatment deal is expected to reopen the doors to bilateral transactions and the resumption of foreign projects stalled when the island nation defaulted.
Sri Lanka declared bankruptcy in April 2022 and suspended repayments on some USD83 billion in domestic and foreign loans amid a severe foreign exchange crisis that led to a severe shortage of essentials such as food, medicine, fuel and cooking gas, and hours-long power cuts.
Sri Lanka’s crisis was largely the result of staggering economic mismanagement combined with fallout from the COVID-19 pandemic, which along with 2019 terrorism attacks devastated its important tourism industry. The coronavirus crisis also disrupted the flow of remittances from Sri Lankans working abroad.
In 2019, the government at the time significantly cut taxes, which drained the treasury just as the pandemic struck. Foreign exchange reserves plummeted, rendering Sri Lanka unable to finance imports or support its struggling currency, the rupee.
The economic upheaval led to a political crisis that forced then-President Gotabaya Rajapaksa to resign in 2022. The Parliament then elected Wickremesinghe as president.