Dr. W.A Wijewardena
Bankruptcy and remedial measures
By any standard, Sri Lanka is recovering from economic bankruptcy today, though chief economic policymakers seem to be disputing the claim of bankruptcy.i In the case of a private venture, bankruptcy means inability to honour financial obligations to outsiders due to its financial net worth becoming negative. By the same token, the bankruptcy of a country means that it is not able to honour its debt obligations to foreign creditors or a given segment of foreign creditors.
In April 2022, Sri Lanka announced that it will not honour the debt servicing obligations – that is, repayment of the principal and payment of interest on the debt when they become due – in the case of two selected foreign creditors, commercial and bilateral creditors. Since then, several policy measures have been taken by Sri Lankan authorities to get out of the economic crisis and place the country on a sustainable growth path.
Sri Lanka applied for an Extended Fund Facility (EFF) from the International Monetary Fund (IMF) to support the external sector stability, on one side, and establish credibility among the foreign donors, on the other. This facility amounting to $ 2.9 billion was granted to the country by IMF in March 2023 subject to an IMF supported reform program concerning the fiscal sector, monetary sector, external sector, and the real sector. Sri Lanka met all the quantitative and structural benchmarks agreed with IMF except the requirement to agree on a viable debt restructuring with commercial and bilateral creditors. The foreign debt restructuring plan is presently being pursued and the governmental authorities have expressed confidence that it could be completed by June 2024.ii This is a postponement of the target date …read more
Source:: Colombo Telegraph