Sri Lanka will negotiate debt restructuring with India, China and the Paris Club separately, as part of an IMF-backed plan to reduce and manage the island nation's debt, President Ranil Wickremsinghe told lawmakers on Wednesday.
Sri Lanka is considering restructuring its local debt parallelly with its external debt, Wickremesinghe told Parliament as the country grapples with its worst economic crisis.
Asserting that Sri Lanka needs to restructure its debt, Wickremesinghe, who is also the finance minister, said, "Sri Lanka's total debt is $83.6 billion. Foreign debt amounts to $41.5 billion, domestic debt amounts to $42 billion."
Sri Lanka secured a $2.9 billion bailout package from the International Monetary Fund (IMF) last month to tackle its huge debt burden.
The Washington-based global lender had made Sri Lanka’s debt restructuring a prerequisite for granting the $2.9 billion bailout.
Pointing that no firm decisions have been made on local debt restructuring, he said negotiations are continuing separately with India, Paris Club and China.
“China is expecting to work separately,” Wickremesignhe said while launching a debate in Parliament on the IMF bailout programme.
“Then on one side we are discussing with Paris Club and India on one side. On the other side will talk with China,” he said.
Wickremesinghe said negotiations for local debt restructuring had started and added that Sri Lanka would launch negotiations with foreign creditors.
“We need to thoroughly consider all aspects. We will let no harm come to anyone. Some banks say they are unable to face this,” the president said, adding that there should be no pre-conditions in local debt restructuring talks.
Wickremesinghe, however, said that when the discussions with foreign debtors are initiated, Sri Lanka would have to take decisions on restructuring its domestic debts.
The IMF deal is expected to reduce the country's foreign debt by $17 billion, he said.
The president said that new legislation would be enacted soon, which will include a new public finance law and a revenue authority law, to implement the agreement with the IMF.
The IMF's Executive Board approved a 48-month extended arrangement under its Extended Fund Facility (EFF) with an amount of SDR 2.286 billion to Sri Lanka following financing assurances from the creditors.
Sri Lanka, which drew its first tranche of the $3 billion bailout programme, has already met an instalment to pay back an Indian line of credit which the island nation obtained early last year just before announcing the debt default.
The IMF bailout, the 17th in Sri Lanka’s history, was approved following prolonged discussions over Colombo's unsustainable debt.
Sri Lanka owes $7.1 billion to bilateral creditors, with $3 billion owed to China, $2.4 billion to the Paris Club and $1.6 billion to India, according to official data from its government.
The island nation was hit by an unprecedented financial crisis in 2022, the worst since its independence from Britain in 1948, due to a severe paucity of foreign exchange reserves, sparking a major political and humanitarian crisis in the island nation.