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Sri Lankans will be granted a five-day public holiday as the government seeks to prevent a bank run while it restructures $US19.8 billion ($29.9 billion) in local debt.
Key points:
- The plan will be submitted to parliament for approval at a special session on Saturday
- It aims to restructure nearly half of Sri Lanka's domestic debt, a requirement of an IMF bailout agreement
- The government announced a bank holiday until next week to prevent a bank run triggered by speculation
Banks will also be spared from the restructuring because of the possible impact on deposits, officials said, with the bulk of the burden shared by the Central Bank and superannuation funds.
Sri Lanka's cabinet a day earlier approved a plan to restructure nearly half of its $US42.1 billion ($63.7 billion) domestic debt, a requirement of a bailout package obtained from the International Monterey Fund (IMF)
A special sitting of parliament has been convened for Saturday to seek approval for the plan.
Central Bank governor Nandalal Weerasinghe said the treasury bills owned by the bank will be converted into treasury bonds with a longer maturity period.
The same has been proposed to superannuation funds. If those funds are unwilling to be part of the plan, they may have to pay a 30 per cent tax instead of the 14 per cent special treatment effective now.
Sri Lanka sought the support of the IMF, which approved a bailout package in March, through which $US3 billion will be handed out in stages.
Sri Lanka's economic crisis, the worst in its history, caused severe shortages of food, medicine, fuel, cooking gas and electricity last year.
That led to massive street protests that forced President Gotabaya Rajapaksa to flee the country and resign.
Foreign financial aid
The crisis-hit island nation is also seeking to reduce nearly $US17 billion of its $US41.5 billion foreign debt through restructuring.
It announced last year that it was suspending repayment of foreign loans because of a severe foreign currency crisis.
It was triggered by the COVID-19 pandemic, excessive borrowing by the government and efforts by the central bank to stabilise the Sri Lankan rupee with scarce foreign reserves.
Meanwhile the World Bank has approved $US700 million in financing for Sri Lanka's projects on economic stability and support for the poor and vulnerable.
Out of the approved fund, $US500 million will support reforms that help improve economic governance and enhance growth and competitiveness.
It will provide budget support in two equal tranches against agreed prior actions, the bank said in a statement.
The other $US200 million seeks to support the country in providing better-targeted income and livelihood opportunities to the poor and vulnerable and improving the social protection system.
Most emerging market currencies weakened on Thursday as the dollar gained on the back of hawkish comments by major central bankers.
Sri Lanka's sovereign dollar bonds rose by as much as 0.77 cents earlier in the session, Tradeweb data showed.
It is asking foreign investors in its international sovereign bonds to take a 30 per cent haircut and seeks similar concessions from holders of its other dollar-denominated bonds in the effort to restructure massive debt.
AP/Reuters