By Uditha Jayasinghe
COLOMBO (Reuters) - Sri Lanka will save $5 billion in interest owed to bilateral creditors as part of its debt restructuring process, President Ranil Wickremesinghe said on Tuesday, adding that the funds will be used to boost dollar reserves and restore growth.
The cash-strapped South Asian country inked deals with China and other creditor nations to restructure about $10 billion in bilateral debt last week following 15 months of negotiations, Wickremesinghe told parliament.
The agreements brought Sri Lanka closer to the end of a debt restructuring process that began in September 2022 after its foreign exchange reserves hit their lowest levels and forced the island nation to default on its foreign debt for the first time.
"Sri Lanka gains multiple benefits from this agreement. The repayment period has been extended by eight years to 2043 and interest rates have been adjusted to 2.1% or less," Wickremesinghe said.
"The country stands among middle-income nations that have successfully navigated the debt restructuring process in such a brief time-frame."
Talks with bondholders to restructure $12.5 billion worth of debt is progressing well and a conclusion is expected soon, Wickremesinghe said, kicking-off a two-day debate on the restructuring process in parliament.
Sri Lanka, whose total external debt is $37 billion, also has to finalise arrangements with China Development Bank to restructure debt of $2.2 billion, according to latest finance ministry data.
The debt rework, which is underpinned by a $2.9 billion International Monetary Fund (IMF) programme, gives Sri Lanka a chance to restore its debt sustainability and use saved funds to improve public services, increase reserves, and reduce domestic interest rates, he added.
Once the entire debt restructuring process is completed Sri Lanka hopes its debt burden will be reduced by $16.9 billion.
The central bank estimates Sri Lanka's economy will expand 3% in 2024 after contracting 2.3% last year.