India is one of the co-chairs of the Official Creditors Committee (OCC) on Sri Lanka
In a significant milestone for Sri Lanka's economic recovery, the Official Creditors Committee (OCC) and the Government of Sri Lanka signed a Memorandum of Understanding (MoU) on debt restructuring on June 26, 2024. 

This milestone demonstrates the strong progress made by Sri Lanka in stabilizing its economy and moving towards reform and growth, India's Ministry of External Affairs (MEA) has said.

The journey towards this agreement began with the International Monetary Fund's (IMF) approval of an Extended Fund Facility (EFF) for Sri Lanka on March 20, 2023. Following this approval, the OCC was established on April 13, 2023, to facilitate discussions among Sri Lanka's bilateral creditors. 

India co-chaired the OCC, along with France and Japan. 

The committee's primary objective was to devise a comprehensive plan to restructure the nation's debt, which had become a pressing issue due to the economic crisis that led to Sri Lanka's first-ever sovereign default in April 2022.

The Role of India and Other Key Players

According to the MEA, India has been steadfast in its commitment to the stabilization, recovery and growth of the Sri Lankan economy. This was also demonstrated by India’s unprecedented financial support of USD 4 billion to Sri Lanka. India was also the first creditor nation to convey financing assurances to IMF which paved the way for Sri Lanka to secure the IMF programme.

After numerous rounds of negotiations, the OCC and Sri Lanka reached a final agreement on June 26, 2024. This MoU outlines the terms for restructuring USD 5.8 billion of Sri Lanka's bilateral debt, including obligations to major creditors like India and China. 

"India will continue to support Sri Lanka’s economic recovery including by promoting long-term investments in its key economic sectors," the MEA stated. 

The agreement was officially announced by President Ranil Wickremesinghe's office, which highlighted the significant debt relief provided by the deal. This relief will allow Sri Lanka to reallocate funds towards essential public services and secure concessional financing for developmental projects.

President Wickremesinghe is expected to address the nation, declaring the agreement as a pivotal moment in ending the country's bankruptcy status. The President, who also serves as the finance minister, has been instrumental in steering the country through this challenging period. His leadership has been crucial in navigating the economic reforms required by the IMF program.

MoU Set to Foster Conducive Environment for Growth

State Finance Minister Shehan Semasinghe expressed gratitude towards the OCC chairs—France, India, and Japan—and the Export-Import Bank of China for their leadership and support. He also acknowledged the dedication of the OCC Secretariat in achieving this significant milestone. The agreement is anticipated to boost confidence in Sri Lanka's economy and foster a more conducive environment for growth.

While the specifics of the debt restructuring are yet to be disclosed, it is understood that the deal covers half of the government’s external debt owed to creditor countries and organizations. As of March 2024, Sri Lanka's outstanding debt stood at USD 10,588.6 million. The OCC comprises both Paris Club nations—Japan, the UK, and the US—and non-Paris Club countries like China and India.

A special parliamentary session has been scheduled for July 2, ahead of its planned July 8 date, to discuss the debt restructuring agreement. This session is expected to delve into the details and implications of the deal.

Following the agreement with bilateral creditors, Sri Lanka will engage in further negotiations with private creditors and international sovereign bondholders. By March 2024, the outstanding commercial loan stock was reported to be USD 14,735.9 million. The success of these negotiations will be crucial in ensuring the comprehensive restructuring of Sri Lanka’s debt.

In the lead-up to this announcement, posters proclaiming "good news" appeared throughout Colombo, reflecting the public's anticipation of the debt restructuring success. This development is seen as a political victory for President Wickremesinghe, who is expected to contest the upcoming presidential elections. His efforts to secure the IMF program and implement necessary economic reforms have been pivotal in steering the country towards recovery.

Wickremesinghe, who became President in July 2022 following the resignation of Gotabaya Rajapaksa amid public protests, has been at the forefront of Sri Lanka’s economic reform efforts. The upcoming elections, likely to be held in September or October, will be a critical juncture for the nation as it continues its journey towards economic stability and growth.

In conclusion, the signing of the MoU on debt restructuring between the OCC and the Government of Sri Lanka marks a significant achievement in the country’s efforts to overcome its economic challenges. This agreement, facilitated by the unwavering support of international creditors, paves the way for a more stable and prosperous future for Sri Lanka.