PMD circulates views of Murtaza Jafferjee and Prof. Sirimal Abeyratne

Sri Lanka’s announcement of reaching agreements in principle to restructure approximately USD 17.5 billion of external commercial debt is a pivotal step towards achieving debt sustainability, according to Murtaza Jafferjee, Chairman of the Advocata Institute and CEO of JB Securities.

A release issued from the President’s Media Division (PMD) said: Speaking on the significance of this development, Jafferjee highlighted the long journey toward this moment and its potential to shift the country’s economic trajectory.

Reflecting on Sri Lanka’s financial situation, Jafferjee explained that as early as 2020, it was evident to him that the nation was facing a solvency crisis, rather than a liquidity issue, as many policymakers suggested at the time. Despite his warnings and public analysis advocating for debt renegotiation, it wasn’t until April 2022 that Sri Lanka initiated the process of debt restructuring.

“This is the culmination of a long process,” Jafferjee remarked, emphasizing the importance of the agreement with commercial creditors. However, he pointed out that the announcement is not the end of the road. “We are still in a selective default rating, and it will take months to finalize the process. Only then can we hope to see a rating upgrade, ideally to around triple C,” he said, underlining the significance of achieving an investable credit rating for the nation’s future economic prospects.

Jafferjee also explained the intricacies of debt sustainability analysis (DSA), a methodology used to assess the ability of a country to manage its debt. He detailed the variables that influence the analysis, such as debt-to-GDP ratios and gross financing needs. According to him, the International Monetary Fund’s (IMF) analysis forms the basis for determining whether Sri Lanka’s debt is sustainable, and if it is not, restructuring is necessary.

Jafferjee warned against delaying the restructuring process, noting that further delays would result in continued high-interest rates on Sri Lanka’s international sovereign bonds, which are currently around 6.5% to 7%. “The new interest rate is closer to 3%, so any delays in finalizing this deal are costly,” he added.

Looking forward, Jafferjee highlighted that while this agreement is crucial, Sri Lanka must focus on enhancing its debt-carrying capacity by 2028, when a significant portion of the restructured debt will begin to mature. He emphasized the importance of increasing economic growth and attracting productivity-enhancing investments to prevent future defaults.

In conclusion, Jafferjee stressed the need for Sri Lanka to improve its international standing and rebuild confidence among investors. “What has been achieved yesterday is a huge game changer in the path to debt sustainability. It is crucial to move forward, grow the economy, and restore Sri Lanka’s credibility on the global stage. If we succeed, we can emerge from this crisis stronger,” he stated.

This breakthrough marks a significant moment for Sri Lanka as it navigates its way out of a severe economic crisis, with hopes that these efforts will spark the much-needed recovery in both investment and business sentiment.

Meanwhile, Senior Professor of Economics at the University of Colombo, Sirimal Abeyratne, stated that the debt restructuring agreement reached on September 18 marks a significant milestone for Sri Lanka’s economy.

Professor Abeyratne highlighted that this agreement will remove the long-standing restrictions on Sri Lanka’s access to international capital markets, stabilize the country’s exchange rates, and strengthen the Central Bank’s foreign reserves. Additionally, the deal will lay the foundation for improving the nation’s downgraded international credit ratings.

He further commented: “Over the past two years, we have been striving to achieve economic stability and debt sustainability. The news we received on September 19th is a significant milestone toward concluding our country’s debt restructuring, particularly with the agreement reached with commercial creditors.

This marks an important turning point in Sri Lanka’s economic history. Through this agreement, we are taking a major step forward in ending the country’s bankruptcy. Restrictions on Sri Lanka’s access to capital markets will now be lifted, giving us the necessary strength to stabilize both our exchange rates and the foreign reserves of the Central Bank. Moreover, the groundwork is being laid to restore the international rankings that had declined. Given these developments, it is clear how critical it is to finalize the debt restructuring process.

However, this is only the beginning. We face several more challenges ahead. It is essential to maintain the economic stability and debt sustainability we have begun to establish. According to the debt sustainability framework we have agreed upon with the International Monetary Fund, by 2030, we aim to significantly reduce our debt burden, lower the amount of new debt, and enhance our capacity to repay foreign loans.

We have until 2032 to achieve these targets, but the work must extend beyond that. Sustainable debt management and the prevention of future economic crises can only be secured through continuous economic growth.

The people of our country have made tremendous sacrifices to support these efforts, and as Sri Lanka’s economic growth gains momentum, the pressure on them will begin to ease. To ensure lasting prosperity, we need to maintain an annual growth rate of 7% to 8% for at least 10 to 20 years. Without this sustained growth, we risk facing another period of economic instability.”