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Foreign debt restructuring: A breather for Sri Lanka to repair its low reserve buffers

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Summary

Sri Lanka is currently negotiating with foreign creditors to restructure its foreign currency debt liabilities in order to reduce its debt service target to 4.5% of GDP in 2027-2032, and to rebuild its foreign reserves to USD 10 billion. The Governor of the Central Bank of Sri Lanka (CBSL) has noted that this restructuring would help Sri Lanka to re-commence payments of suspended foreign loans at a feasible level while accumulating foreign reserves. The CBSL has also noted that the IMF Program is in place to help restore public debt sustainability, and that new loans from the World Bank, ADB, IMF, and Japan will help re-commence repayment of foreign debt without impacting the foreign reserves.

Q&As

What is Sri Lanka's foreign currency debt liabilities and what is the country doing to reduce it?
Sri Lanka's foreign currency debt liabilities are high and the country is negotiating with foreign creditors to reduce it.

What is the maximum forex debt service target Sri Lanka is hoping to negotiate with foreign creditors?
Sri Lanka is hoping to negotiate a maximum forex debt service target of 4.5% of GDP in 2027-2032.

How is Sri Lanka working to build its foreign reserves?
Sri Lanka is negotiating to restructure its foreign debt and extend the period of foreign debt in a manner that the repayments are able to be sustained. The country is also hoping to increase its foreign reserves to 10 USD billion from its current 3 billion.

What are the key pillars of Sri Lanka's IMF program?
The key pillars of Sri Lanka's IMF program are revenue-based fiscal consolidation, fiscal structural reforms, protect the poor and vulnerable, restore price stability and rebuild external buffers, safeguard financial system stability, growth-enhancing reforms, and reducing corruption vulnerabilities.

How is the Sri Lanka Gem and Jewellery Association working to advance the gem and jewellery industry in Sri Lanka?
The Sri Lanka Gem and Jewellery Association is presenting its “Sri Lanka Gemstone Hub Strategy Sapphire Capital of the World” proposal to the State and is aligning its aspirations with the visionary intentions of President Ranil Wickramasinghe. The Association is also working to provide the necessary guidance and maximum support to advance the gem and jewellery industry by utilizing the resources and capabilities in Sri Lanka.

AI Comments

👍 This article highlights the strategies and efforts of the Sri Lanka Gem and Jewellery Association to increase the presence of the gem and jewellery industry in the country.

👎 This article does not provide specific details on how Sri Lanka will manage its foreign debt liabilities in the future.

AI Discussion

Me: It's about Sri Lanka negotiating with foreign debt creditors to restructure its foreign currency debt liabilities to give it space to rebuild its reserve buffers. The Governor of the Central Bank of Sri Lanka said that this is being done to prevent ending up in another economic crisis.

Friend: That's interesting. What are the implications of this article?

Me: The implications of this article are that by restructuring its foreign debt, Sri Lanka will be able to reduce its burden of foreign loan repayments while also being able to accumulate its foreign reserves. This would help Sri Lanka to have positive growth in the third and fourth quarters of 2023. It would also help restore public debt sustainability, which is one of the key objectives of Sri Lanka's IMF program. Additionally, it could help to increase foreign investment in the country.

Action items

Research the current foreign debt restructuring process in Sri Lanka and the potential implications for the country's economy.
Analyze the potential impact of the proposed foreign debt restructuring on Sri Lanka's foreign reserves and its ability to repay its loans.
Develop a plan to monitor the progress of the foreign debt restructuring process and its impact on Sri Lanka's economy.

Technical terms

Foreign Debt Restructuring: A process in which a country renegotiates the terms of its existing debt with its creditors in order to reduce its debt burden and improve its ability to repay its loans.
Foreign Currency Debt Liabilities: The amount of money a country owes to foreign lenders in a foreign currency.
Forex Debt Service Target: The amount of money a country must pay each year to service its foreign debt.
Grace Period: A period of time during which a borrower is not required to make payments on a loan.
Haircut: A reduction in the amount of money a borrower must repay on a loan.
Impairment Charges: A charge taken against a company’s earnings to reflect the reduced value of an asset.
Liquidity: The ability of an asset to be converted into cash quickly and without a significant loss in value.
Portfolio Quality: The quality of a company’s investments, as measured by the amount of risk associated with them.
Statutory Ratios: A set of ratios used to measure a company’s financial performance.