Five-day cooling off period for banks as DDR announcement due next week

• Analysts speculate re-profiling of domestic debt with a five year extension along with interest coupon cut

The much awaited Domestic Debt Restructuring (DDR) or Optimisation (DDO) will be announced next week with the Government declaring a special bank holiday on 30 June ensuring a five-day stability or cooling off period for the economy and financial services sector.

Analysts speculated the DDR/DDO will involve a re-profiling of domestic debt with a five year extension and an interest coupon cut as opposed to a principal haircut. Officials were tight lipped about the framework which is expected to be announced either on Wednesday or Thursday. The Government last week whilst maintaining no finality has been reached on DDR/DDO, ruled out a hair-cut. It also appears that DDR will be resolved first before finalising an arrangement with external bilateral and private creditors by September-November 2023. Of Sri Lanka’s public debt, Treasury Bonds amount to Rs. 8.7 trillion or $ 24 billion.  Treasury Bills amount to Rs. 4 trillion or $ 11.4 billion.

Sources said the arrangement will have minimal impact on the banking sector.

Nevertheless, to enable proper assessment of the DDR/DDO impact by markets, shareholders, investors and customers there will be a cooling off period of five days (Thursday 29 June to 3 July Poya holiday) with the Government declaring 30 June a special bank holiday.

The relevant Gazette to this effect was issued by Prime Minister Dinesh Gunawardena in his capacity as the Minister of Public Administration. The move was on the back of an existing bank holiday on Thursday 29 June in lieu of the Haj festival.

Some officials attributed the Gazette to restoring the previous practice of 30 June being a special bank holiday. In the past decade or two there was no special bank holiday on 30 June.