Home Press Release Statements Sri Lanka’s unfair debt restructurings with bondholders
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Sri Lanka’s unfair debt restructurings with bondholders

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Sri Lanka’s bondholders to get repaid 20%-45% more than governments

  1. Summary
    • If the July 2024 agreement goes through, Sri Lanka’s bondholders will get repaid 19% more than
      bilateral creditors such as China, Japan, and India (in the baseline deal). If bondholders get more
      through the ‘upside deals’, they will get 28%-46% more than bilateral creditors.
    • In total bondholders are set to be repaid 80 cents (in the baseline deal). Depending on Sri Lanka’s
      economic growth between 2024 and 2027, this could go as high as 98 cents and as low as 70
      cents
    • The debt relief being considered acceptable by the IMF will leave Sri Lanka paying twice as much
      as Zambia, as a proportion of government revenue, and leave Sri Lanka trapped with some of the
      highest external debt payments in the world for years to come
    • The July 2024 deal is slightly better for Sri Lanka than the proposal made by bondholders in April
      2024, but significantly worse than Sri Lanka’s proposal from April 2024

    2. Bondholder restructuring
    On 3 July the Sri Lankan government announced it had reached an agreement to restructure debt payments on its International Sovereign Bonds with committees representing many of the bondholders. The agreement must still be decided as acceptable by bilateral creditors and the IMF. If it is, it will be put to a vote of all the bondholders.
    Under the baseline deal, there will be:

    • a 28% reduction in the amount of principal owed
    • an 11% reduction in the defaulted interest
    • A $225 million fee is to be paid when the restructuring is concluded in 2024
    • Interest rates of 3.5%-5.5% for the next eight years, rising to 8.75%-9.75% from 2033 on
    • Repayment of the defaulted interest from 2024 to 2028, then the main principle from 2029 to
      2036
      If Sri Lanka’s GDP is higher than the IMF expects from 2025-2027, then more principal is repaid, and
      the interest rate increases. If GDP is lower, then less principal is repaid. We estimate, using the concept of net present value, with a discount rate of 5%, that bondholders will effectively be repaid the following amounts compared to the amount originally lent:
    ScenarioOriginal amount lentNet present value of new paymentsAmount bondholders will receive for every $1 lent
    Baseline$12,550 million$9,996 million80 cents
    GDP 4% higher$12,550 million$10,836 million86 cents
    GDP 8% higher$12,550 million$11,822 million94 cents
    GDP 8% higher$12,550 million$12,303 million98 cents
    GDP 2% lower$12,550 million$9,364 million75 cents
    GDP 4% lower$12,550 million$9,364 million75 cents
    .
    Net Present Value
    Net present value is a way of calculating debt owed including the interest and principal payment schedule. The concept is based on the idea that the same nominal payments in the future are worth less than now. The reason why future payments are worth less is different depending on whose perspective a deal is looked at, but include inflation, economic growth and where else the money could have been invested. The IMF uses a discount rate of 5%, which means a debt payment is worth 5% less each year into the future it is made. We have used the 5% rate in our calculations.
    .

    3. Bilateral restructuring
    It has been reported that the restructuring agreement with bilateral creditors is likely to involve:

    • No reduction in the principal amount owed
    • No repayments until 2028, then the principal will be repaid from 2028 to 2042
    • An interest rate of 2%
      According to the IMF, $11.4 billion of bilateral debt was owed at end-2022.We estimate that with the restructured payment schedule, the Net Present Value of the external debt will be $7.7 billion, calculated from end-2022. This is estimated assuming:
    • No payments in 2023
    • 2% interest paid on outstanding principal for half of 2024
    • 2% interest paid on outstanding principal from 2025 to 2042
    • Principal repayments of equal amounts each year from 2028 to 2042 ($761 million a year)
    • A discount rate of 5% (ie, every year into the future, repayments cost Sri Lanka effectively 5%
      less).
      A Net Present Value of $7.7 billion would mean that for every $1 lent, bilateral creditors would
      effectively be repaid 67 cents ($7.7 billion / $11.4 billion).
    Restructuring proposal Amount of nominal
    debt owed, end
    2022 (ie, amount
    lent)
    Estimate of Net
    Present Value
    following
    restructuring
    proposal
    Estimate of
    effective amount
    creditor will get
    back for every $1
    lent
    Bilateral creditors $11,400 million$7,700 million 67 cents
    Bonds agreement July 2024,baseline$12,550 million $9,996 million 80 cents
    Sri Lanka April 2024 proposal to bondholders (baseline)$12.550 million $9,270 million 74 cents
    Bondholders March 2024
    proposal (baseline)
    $12,550 million $12,100 million
    96 cents
    Bondholders April 2024
    proposal (baseline)
    $12,550 million$10,340 million82 cents
    .1
    CreditorAmount owed
    Multilateral $11.49 billion
    Asian Development Bank $5.97 billion
    World Bank $3.84 billion
    IMF $1.06 billion
    Other $0.62 billion
    Bilateral $11.42 billion
    China $4.48 billion
    Japan $2.83 billion
    India $1.83 billion
    Other Paris Club$1.96 billion
    Other non-Paris Club $0.32 billion
    Private $18.56 billion
    Bonds$13.36 billion
    China Development Bank $2.9 billion
    Other private included in restructuring $0.26 billion
    Central bank currency swaps (not included in
    restructuring)
    $2.04 billion
    .
    Foreign currency debt
    service as percentage
    of GDP
    Government revenue
    as a percentage of GDP
    External debt service
    as percentage of
    government revenue
    2023 1.7 10.1 16.8
    20242.812.9
    21.7
    2025 3.4 14.9 22.8
    2026 4.4 15 22
    2027 4 15.1 26.5
    2028 4.4 15.2 28.9
    2029 4.4 15.2 28.9
    2030 4.3 15.2 28.3
    2031 4.3 15.2 28.3
    2032
    4.2 15.2 27.6
    2033 4.2 15.2 27.6
    Average 2024-2033 3.9 26.3
    .

    To be able to keep making these high debt payments, the IMF says Sri Lanka must have a primary budget surplus of 2.3% of GDP for at least the next decade.4 This means that for every $7 the Sri Lankan government gets in tax revenue, only $6 will be spent on public services and other spending by the government. 

    The IMF program expects Sri Lanka to start borrowing foreign currency external bonds again from 2027, with $1.5 billion being disbursed in 2027.5


    1. https://asia.nikkei.com/Spotlight/Sri-Lanka-crisis/Sri-Lanka-s-debt-repayments-to-be-suspended- until-2028 ↩︎
    2. https://www.imf.org/en/Publications/CR/Issues/2023/03/20/Sri-Lanka-Request-for-an-Extended-Arrangement-Under-the-Extended-Fund-Facility-Press-531191 ↩︎
    3. http://Calculated by Debt Justice from https://www.imf.org/en/Publications/CR/Issues/2023/12/12/Sri-Lanka-First- Review-Under-the-Extended-Arrangement-Under-the-Extended-Fund-Facility-542441 ↩︎
    4. http://The primary budget surplus measures how much a government is spending compared to how much revenue it is receiving, not including interest payments. ↩︎
    5. https://www.imf.org/en/Publications/CR/Issues/2023/03/20/Sri-Lanka-Request-for-an-Extended-Arrangement-Under-the-Extended-Fund-Facility-Press-531191 ↩︎
    https://debtjustice.org.uk/press-release/sri-lankas-bondholders-to-get-repaid-20-45-more-than-china

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