• Sri Lanka's cabinet has approved a proposal to restructure the nation's international sovereign bonds.
• The decision, proposed by President Anura Kumara Dissanayake, involves exchanging new bonds for existing ones.
• The restructuring process will adhere to the International Monetary Fund's comprehensive credit facility and debt sustainability analysis parameters.
• This strategic move aims to ensure Sri Lanka's financial stability and economic growth.

In a significant move, the Sri Lankan cabinet has given the green light to a proposal aimed at restructuring the nation's international sovereign bonds. This decision, which was announced by the government's information department on Tuesday, involves the exchange of new bonds for those currently in existence. The proposal was put forth by President Anura Kumara Dissanayake, who also holds the portfolio of Minister of Finance, Planning, and Economic Development.

Sri Lanka's Strategic Financial Move

The decision to restructure the bonds came after a thorough examination by the Sri Lankan government's financial advisors. They assessed the impact of the country's international sovereign debt, its composition, and the implications for investors and settlements on the Sri Lankan economy.

The restructuring process will adhere to the provisions under the International Monetary Fund's comprehensive credit facility and the parameters of debt sustainability analysis. This move is seen as a strategic step towards ensuring the country's financial stability and economic growth.

On Tuesday, the Ministry of Finance, Planning, and Economic Development issued a media release announcing the official commencement of the exchange of its outstanding international sovereign bonds.

As of November 25, 2024, these bonds amounted to approximately 12.55 billion US dollars. The ministry has invited holders of the existing bonds to tender their bonds and exchange them for new instruments. This process will take place over a three-week period, with the final deadline set for December 12, 2024.

Negotiations and Historical Precedents

The decision to restructure the debt was reached after extensive discussions and negotiations. The Sri Lankan government reached a final consensus on restructuring debt by members of the official credit committee of major bilateral creditors in June 2024.

In September 2024, an initial agreement was reached with international bondholders on restructuring of sovereign debt worth 14.2 billion dollars. This agreement was the result of discussions with a group of representatives of international investors and the local consortium.

This is not the first time a country has taken such a step. In the past, several nations have resorted to similar measures to manage their sovereign debt. For instance, in 2005, Argentina successfully restructured its sovereign debt, which was one of the largest in history. The country managed to exchange old bonds for new ones, reducing its debt by about two-thirds.