President to declare SL free of bankruptcy amidst CB, Treasury chief’s pre-emptive default assertion

President Ranil Wickremesinghe

Central Bank Governor Dr. Nandalal Weerasinghe 

Treasury Secretary Mahinda Siriwardana 

• Officials way back in April 2022 insisted SL not bankrupt but opted for debt standstill
• Country continued to honour multilateral debt servicing and borrowed fresh funding, a phenomena not possible if SL was bankrupt 
• Main Opposition SJB scoffs at move by Wickremesinghe to claim SL is no more bankrupt as an election gimmick
• Says a sovereign’s ability to repay external debt is regularly announced to the world by independent credit rating agencies; not by any politician
• Says Sri Lanka will get out of default rating only after the ISB exchange is completed
• Opines MLB-heavy ‘April Proposal’ is detrimental to Sri Lanka
• Insist SL must get a better deal; not compromise ISB restructure for short-term political gain

The Government led by President Ranil Wickremesinghe is tipped to pronounce this week that the country is no longer bankrupt, a status which his own Treasury chief and the Central Bank Governor have denied on the basis that Sri Lanka opted for a pre-emptive default or a debt standstill way back in April 2022.

The reason for the President to proclaim the end to bankruptcy is the impending finalisation of the Memorandum of Understanding with the Official Creditor Committee and final agreements with the Export Import Bank of China along with Ad Hoc Private Bondholder’s group external on debt treatments on Wednesday 26 June.

Sources said that the President will formally announce the breakthrough on Thursday 27 June via a special statement in Parliament, his second within a week.

However, analysts opined that the President is going to declare an unwarranted status. The reason being that way back in 2020, Treasury Secretary Mahinda Siriwardana and the Central Bank Governor Dr. Nandalal Weerasinghe were emphatic that Sri Lanka didn’t pronounce bankruptcy but opted for a debt standstill or a pre-emptive default. At that time Sri Lanka had an annual external debt servicing of $ 6 billion.

“The country is not bankrupt but the Government took a conscious decision to opt for a pre-emptive negotiated default in the largest interest of the country and its people,” Dr. Weerasinghe told the Daily FT in mid-April 2022 (https://www.ft.lk/top-story/Sri-Lanka-declares-bank-ruptcy/26-733409) in response to the Daily FT’s most read top story titled “Sri Lanka declares bankruptcy” on 13 April following the Government’s move on 12 April (See https://www.ft.lk/top-story/Sri-Lanka-declares-bank-ruptcy/26-733409).

Even during a recent television interview Dr. Weerasinghe reiterated this fact saying, “In April 2022, when we had to announce the standstill or temporary suspension of making external debt service payment.”

Dr. Weerasinghe emphasised that despite the debt standstill, Sri Lanka continued to honour multilateral and domestic debt servicing. “If we are a default nation, we wouldn’t have been able to obtain loans,” the CBSL Chief said in apparent response to post-debt still financial support from multilateral creditors such as the World Bank and the Asian Development Bank.

According to the Finance Ministry, in 2023, Sri Lanka carried out total debt service payment of $ 1.44 billion of which, $ 1 billion was in lieu of principal repayments and the balance $ 408.6 million for the payment of interest.

The Finance Ministry’s 2022 Annual Report confirmed that “the Government announced a debt standstill in April 2022, specifically for foreign bilateral and commercial debt, with virtually depleted usable official foreign exchange reserves and in an environment where there was no possibility to make foreign debt service payments. “The inability to manage the excessive debt overhang and the acute shortage of liquid reserves led the Government to announce a debt standstill in April,” said Treasury Secretary Mahinda Siriwardana in October 2022 at a public forum.

Amidst impending Government-inspired celebration this week over the end of the bankruptcy, main Opposition Samagi Jana Balawegaya (SJB) scoffed at the move.

SJB MP Dr. Harsha de Silva in a post on X said, “A sovereign’s ability to repay its (external) debt is regularly announced to the world by independent credit rating agencies and not by any politician. Sri Lanka will get out of default rating after the ISB exchange is completed. That will happen after restructuring agreement on bilateral debt. Issue is whether we should agree to their MLB heavy April Proposal.” 

He said that SJB’s view is that it is detrimental to Sri Lanka. “We must get a better deal; not compromise the ISB restructure for short term political gain,” de Silva added. 

SJB MP Ajith Perera told a media briefing yesterday that ahead of the Presidential election the incumbent Ranil Wickremesinghe is trying to show that he is the leader who rescued the country from bankruptcy.

“It is not the politicians in that country who decide whether a country is bankrupt or not. If the International Rating Agency says that Sri Lanka is out of bankruptcy, it can be accepted,” Perera opined.

“If the President tries to deceive the people of the country by simply making a self-declaration in the Parliament without completing anything necessary to get out of bankruptcy and holding talks through his followers, it is wrong. The country is coming out of bankruptcy in a formal way, but if the country is coming out of bankruptcy for the sake of elections, using various tricks and entering into agreements that are harmful to the country with the bond holders who have given loans to Sri Lanka, it will cause the country to go bankrupt even more,” SJB MP Perera told the media.