Sri Lanka’s cabinet has approved a proposal to restructure the bankrupt country’s domestic debts of $42bn, a controversial decision that the government says is necessary to comply with the terms of its IMF bailout.
Sri Lanka, which defaulted on its foreign debt last year, secured a $3bn, four-year lending programme with the fund in March and is in negotiations with creditors including China, India and Japan to restructure its foreign debts, amounting to another $42bn as of the end of 2022.
But President Ranil Wickremesinghe’s government had been reluctant to restructure the country’s local-currency liabilities over fears that the hit to banks, pension funds and other financial institutions that hold the debt would derail Sri Lanka’s nascent economic recovery.