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Sri Lanka being fleeced through debt restructuring, says Economic Analyst

Published

2 years ago

2024/04/27

Gihan Pathirana

There isn’t a significant difference between the debt restructuring proposals made by private bondholders and the government of Sri Lanka, Economic Analyst Dhanusha Gihan Pathirana told The Island.

On 16 April 2024, the Sri Lankan government announced that the country’s debt restructuring process with private bondholders had hit a roadblock and that despite “constructive discussions”, the two sides did not come to an agreement on “restructuring terms.” The Ministry said that the Steering Committee comprises 10 of the largest bondholders and that the Ad Hoc Group controls “approximately 50 percent of the aggregate outstanding amount of ISBs.” These bondholders represent about 12 billion U.S dollars of the country’s total debt.

“When one looks at the announcement, one would feel that there is a significant difference in the proposals by private bondholders and the government of Sri Lanka. Verite Research has found that there isn’t a significant difference between the proposals made by private bondholders and the government of Sri Lanka,” he said.

The average interest rates for commercial loans are about 5 to 6 percent. The Ad Hoc Group of Bondholders, which consists of some of the country’s biggest private holders of debt, in its proposal has called the South Asian nation to issue a “Macro-Linked Bond” (MLB) as a part of new securities that will be offered to those who hold existing bonds.

“The Ad Hoc Group has suggested Sri Lanka pays an interest rate of 9.75 percent for the MLBs if Sri Lanka grows, on average by 5.3 percent, in the coming five years. The government has agreed to go up to 9 percent. You can see the difference here is minute,” he said.

He said that if Sri Lanka has to pay private bondholders over 9 percent interest when the average growth rate is around 5.3 percent from 2024 to 2028, the interest rate is almost double that of growth rate.

“One of the economic principles is that growth rate and interest rates must be roughly equal. If the profit rate is significantly higher than the growth rate, there will be significant inequality. Thus, the proposals of the bondholders and the government is a violation of basic economic principles,” he said.

Sri Lanka is trying to restructure about 25 billion dollars of its debt, although the total foreign debt is about 50 billion dollars. Sri Lanka continues to pay about 11 billion dollars of debt from multilateral organizations.

“But we are paying them. This is one of the points China raises. What the Chinese ask is why aren’t the multilateral agencies taking a haircut for the loans they have given,” he said.

The bond holders have agreed to give a 28 percent haircut to the debt they hold. However, in 2001 Argentina imposed a roughly 75 percent haircut on its creditors while Greece received a 64 percent haircut in 2012. Sri Lanka is trying to restructure about 25 billion dollars of its debt, although the total foreign debt is about 50 billion dollars. Sri Lanka continues to pay about 11 billion dollars of debt from multilateral organizations.

“Look at what has happened to Greece and Argentina even after such a large haircut. The debt to GDP ratio of Greece was about 160 percent in 2012. Even with a haircut which was over 50 percent of its GDP, Greece again has a debt to GDP ratio of about 160 percent,” he said.

On the other hand, if the GDP of the country picks up and goes above 98.9 billion dollars in 2028, Sri Lanka will virtually get no haircut from private bond holders.

“Imagine if we continue to grow at 5.3 percent, the haircut for private creditor debt will drop to about six to seven percent. The IMF says our GDP will be at about 80 billion by 2028. The Ad Hoc Group says, if the GDP is over 96 billion, they want Sri Lanka to pay an interest rate of 9.75 percent. This is simple,” he said.

Pathirana said the Sri Lankan government, too, has asked for a very small haircut, with a proposal that is identical with the one presented by the debt holders.

“The government wants to show us that it’s bargaining. Unfortunately for us, this is all very performative. What I want people to understand is, if Greece and Argentina are still in trouble despite massive haircuts, what is the fate of Sri Lanka that is asking for a very small haircut?” he asked.

When countries restructure, the concept of net present value is used, he said. The country will probably get a five-year period where we won’t have to repay debt from private creditors. However, once Sri Lanka starts to pay back loans it will have to pay 1.3 billion dollars as interest for the loans, which is subjected to another four percent interest.

“This is what we call ‘poli pita poli gahanawa’ (interest on top of interest). They are fleecing us,” he said.

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Iranian ships stranded, Lanka fears US sanctions

Published

12 hours ago

2026/10/11

Thilina Walpola

‘Companies may face US sanctions’: Lanka to put ‘national interest’ first as 19 Iranian vessels seek help

(ToI) Sri Lanka said on Friday it would “prioritise our national interests” before providing assistance to the crews of 19 Iranian ships anchored in international waters near the island nation.The crews are facing shortages of food, water and fuel. A foreign ministry spokesperson cited the risk of US sanctions against Sri Lankan companies supplying the vessels as a key concern.

The United States and Iran have been at war since February 28, when the US and Israel launched joint strikes against the Islamic Republic.

“Sri Lanka will put its national interest first before considering any help, and the companies that supply ships are aware of possible secondary sanctions from the United States,” spokesperson Thushara Rodrigo told reporters, ruling out any immediate assistance to the vessels.

Rodrigo clarified, however, that Sri Lanka had received no communication from the United States warning of repercussions if it decided to assist the vessels.According to Rodrigo, the ships are stationed 24 nautical miles off Sri Lanka’s coast.The Iranian Embassy said it had no information on the matter.

In March, a US torpedo attack sank the Iranian naval vessel IRIS Dena in Sri Lankan waters, killing 87 sailors.

The ship was returning to Iran after participating in a naval exercise at India’s invitation. A second Iranian vessel was brought to a Sri Lankan port after its crew reported technical problems.

Wounded sailors were treated at Sri Lankan hospitals, while those rescued from the second vessel were safely repatriated to Iran.

Sri Lanka is still recovering from an economic crisis, with both the United States and Iran serving as important trading partners. Washington played a key role in securing an International Monetary Fund bailout and supporting Sri Lanka’s agricultural sector to help avert a food crisis.

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Sri Lanka CERT warns of overseas university admission scams

Published

12 hours ago

2026/10/11

Thilina Walpola

Sri Lanka CERT has warned the public of fraudulent social media advertisements offering admission to foreign universities after receiving complaints from parents and students who have lost hundreds of thousands of rupees to scammers.

The fraudsters reportedly pose as representatives of reputed foreign universities, promising admission, student visas, work permits and even eventual citizenship in return for registration fees and initial tuition payments.

They use convincing videos, photographs and documents circulated via email and WhatsApp to gain the confidence of unsuspecting victims before asking them to transfer money to foreign bank accounts. The scammers then disappear after receiving the payments, Sri Lanka CERT said.

The agency has urged prospective students and their parents to verify the authenticity of university representatives, documents and bank account details before making payments, and to seek overseas education opportunities only through legitimate and recognised channels.

News

Navi Pillay’s Lankan affairs in focus as she wins 2026 Nobel Peace Prize

Published

12 hours ago

2026/10/11

Thilina Walpola

Navi Pillay

Former UN High Commissioner for Human Rights and International Court of Justice judge Navanethem “Navi” Pillay has won the 2026 Nobel Peace Prize for her contribution to international law and efforts to promote peace, the Norwegian Nobel Committee announced in Oslo on Friday.

Announcing the award, committee chairman Jørgen Watne Frydnes said Pillay had “significantly enlarged the scope and impact of international law” and helped advance “a more comprehensive global legal order” with exceptional courage. He also praised her long career, which began as a lawyer confronting deep-rooted discrimination in South Africa, and described her as a person with a “firm moral compass”.

Pillay, 85, served as the UN High Commissioner for Human Rights from 2008 to 2014. Her tenure brought her into sharp focus in Sri Lanka, particularly over her assessment of the country’s human rights situation in the aftermath of the decades-long civil war.

During an official fact-finding visit to Sri Lanka from August 25 to 31, 2013, Pillay travelled to areas including Jaffna, Kilinochchi and Trincomalee, where she met civil war survivors, families of the disappeared and local communities.

Following the visit, she warned that Sri Lanka was moving towards authoritarianism and highlighted what she described as a persistent climate of fear.

She also reported intimidation and harassment of people who had sought to meet her during the mission.

Pillay urged the UN Human Rights Council to establish an international inquiry mechanism to investigate alleged war crimes and crimes against humanity committed by both government forces and the LTTE during the final stages of the 26-year civil war.

Her observations and recommendations became a significant part of international scrutiny of Sri Lanka’s post-war human rights record.

The Norwegian Nobel Committee received 287 nominations for this year’s Peace Prize, slightly more than a quarter of them being organisations. The committee traditionally considers efforts to promote peace, international fraternity and institutions that contribute to lasting stability.

Last year, Venezuelan opposition leader Maria Corina Machado won the prize for her campaign for a democratic transition in Venezuela. She was praised as a woman who kept the flame of democracy burning amid growing darkness.

The 2026 award marks the 125th anniversary of the Nobel Peace Prize, first presented in 1901. Over its history, the prize has recognised prominent figures and organisations involved in advancing peace, human rights and international cooperation.