News — ChangeLab

France, Japan and India in search of a solution to Sri Lanka's debt crisis

Last week, representatives of India, Japan and France announced the creation of a common platform for discussion and exchange of information between creditor countries on the issue of restructuring Sri Lanka's foreign debt. As the country is facing an unprecedented economic and debt crisis, experts believe that this initiative will begin to improve the economic situation not only in Sri Lanka but also in other middle-income countries.

As we have discussed before, to solve this predicament, the International Monetary Fund in March 2023 approved a four-year program of material assistance to Sri Lanka worth 2.9 billion U.S. dollars. But despite these measures, the country is still unable to climb out of the debt hole. That's why on April 13, during a meeting of Sri Lanka's biggest creditors, the possibility of creating alternative schemes to resolve the resulting debt was discussed.

Many experts argue that Sri Lanka's high interest rates on loans make debt management difficult, and political instability in the country affects the government's ability to implement economic reforms and attract foreign investment, generally forcing the country to ask for outside help.

In this situation, the ChangeLab team can point out that creating a new platform to negotiate the restructuring of part of Sri Lanka's debt will offer hope for the country's economic recovery. It is crucial for Sri Lanka to renegotiate its debt with creditors, including China, the Paris Club of developed creditors and India, which owe $3 billion, $2.4 billion and $1.6 billion respectively. In addition, the country is also facing the issue of renegotiating agreements with private creditors on more than $12 billion worth of Eurobonds, which is obviously a kind of burden on the state.