Successful foreign debt restructuring could reduce Sri Lanka’s debt by US $17 billion

Minister of Foreign Affairs, Ali Sabry says the government expects to finalize the foreign debt restructuring process by June, leading to a reduction of approximately US $17 billion of Sri Lanka’s debt burden.

The minister further said that the primary focus is on navigating the challenge of debt restructuring.

Stating that the initial phase of domestic debt restructuring has been completed, with attention now turned to foreign debt restructuring, he said negotiations with private investors linked to sovereign bonds aim to finalize this phase by June, with a targeted completion before June 2024.

Successful restructuring could result in a $17 billion advantage for Sri Lanka, potentially reducing the debt burden through various means, while these efforts will also facilitate the continuation of developmental activities within the country, he said.

Minister of Foreign Affairs Ali Sabry made these remarks while addressing a press briefing held at the Presidential Media Centre today (May 08).

The minister also emphasized that Sri Lanka’s adherence to a non-aligned foreign policy, coupled with its commitment to maintaining relations with all nations, while safeguarding its sovereignty, has resulted in numerous concessions for the country.

Minister Ali Sabry further highlighted the government’s endeavours to garner support for Sri Lanka’s economic development by fostering strong ties with both China and India.

During the press conference, he gave the following overview of the recent foreign policy decisions, foreign relations and the high-level visits the Sri Lankan government has undertaken, particularly the recent visits of the Japanese Foreign Minister and Iranian President.

“Sri Lanka prides itself on upholding an independent foreign policy, which doesn’t mean isolation but rather engaging with all nations—a concept known as non-alignment. Our commitment lies in maintaining this legacy of non-alignment, independence, and the sovereignty of our Parliament and state. Hence, it’s crucial for us to collaborate with both Eastern and Western nations, nurturing closer ties with our allies.

Over time, we’ve cultivated strong relationships with Western and Eastern countries, as well as our neighbours, which have proven invaluable in overcoming economic challenges.

Securing support from major partners and creditors, including the U.S., France, India and China, was pivotal during negotiations with the IMF. We’ve made progress in debt restructuring, gaining the backing of the Official Creditor Committee and comprising nations like India, Japan and the Paris Club. Our aim is to conclude debt restructuring by the end of June, with the support of all major players. This includes finalizing agreements with China. Once debt restructuring is achieved, mainly the external debt restructuring, we can focus on fostering economic growth through partnerships with various parties. Our on-going engagement with China, evident through visits by the President, Prime Minister, and myself, underscores our commitment to this approach.

Currently, our primary focus lies in effectively navigating the challenge of debt restructuring. We have successfully completed the initial phase, addressing domestic debt restructuring. Moving forward, our attention turns to the next crucial steps, particularly foreign debt restructuring. Our aim is to diligently negotiate and finalize this phase by the end of June, specifically engaging with private investors associated with sovereign bonds. The government is determined to achieve this milestone before June 2024.

Upon successful completion, Sri Lanka stands to gain a significant advantage of US $17 billion throughout the entire restructuring process. This advantage may manifest in various forms, including reductions in principal amounts, interest payments, or extended repayment timelines. Such restructuring efforts hold the potential to alleviate our debt burden by US $17 billion. Simultaneously, these endeavours will pave the way for the continuation of developmental activities within the country at the earliest opportunity.

The Prime Minister’s recent visit to China, where we signed nine MoUs, reflects our ongoing efforts to strengthen ties. Particularly with India, considerable progress has been made in our collaboration with India, with significant Indian investments currently underway. Additionally, the recent approval by the Cabinet of tariffs and Power Purchase Agreements with the Adani Group at US $0.08 per unit is a notable development.

As the Ministry of Foreign Affairs, we adhere strictly to international rules and regulations in our interactions with foreign countries. Consequently, the visit of the Iranian President to Sri Lanka raised no concerns within the international community. In parallel, we’re actively seeking to attract more investors, as demonstrated by the successful visit of the Iranian President, which led to the inauguration of the Uma Oya project contributing 120 megawatts to our energy grid. Furthermore, we anticipate increased tourism from the region with news of Mahan Air, the Iranian airline, expressing interest in flying to Sri Lanka.

In recent developments, the visit of the Japanese Foreign Minister to Sri Lanka marked an important milestone. Japan has pledged its moral support and endorsed Sri Lanka’s economic reforms. During discussions, Japan officially encouraged and praised the bold economic reforms that the Sri Lankan government is undertaking and affirmed its commitment to restarting stalled projects. This collaboration with our partners is pivotal in driving our economic agenda forward and fostering development.

Saudi Arabia has shown a keen interest in investing in Sri Lanka. Notably, Middle Eastern nations are actively seeking to diversify their economies away from fuel dependency and are exploring investment opportunities abroad. We are diligently working to capitalize on these opportunities for the benefit of Sri Lanka.

To position Sri Lanka as a premier tourist destination, we must shift our focus away from visa fees. Instead, we should consider offering free visas to citizens of approximately fifty countries. Such a move could ignite excitement within the tourism sector and bolster visitor numbers.

Furthermore, diplomatic initiatives are currently in progress to retrieve Sri Lankans detained by smugglers in Myanmar and to protect our youth enlisted in mercenary forces linked to the Russia-Ukraine conflict. These issues have also been addressed with Russian security authorities”.