Business
Sri Lanka’s Sovereign Foreign Debt: to restructure or not?
By Dr Dushni Weerakoon
Sovereign debt restructuring can be pre-emptive or post-default. A default is inherently costly as it can result in a sustained loss of access to capital markets. That leaves pre-emptive restructuring when a country deems itself unable to service outstanding debt.
The complex creditor landscape of today though makes governments reluctant to entertain sovereign debt restructuring. The landscape of sovereign borrowing has evolved from a small group made up of multilateral organisations, a few commercial banks, and the ‘Paris Club’ of rich countries to something much more complicated. In recent decades, emerging markets and developing economies have borrowed proportionately more from international bond markets with their dispersed private investors, and tapped new non-Paris Club lenders like China. From the sovereign’s perspective, this makes a potential debt restructuring operation particularly complicated.
The first step in any restructuring is calculating how much a country owes and to whom. This involves sharing detailed information on all categories of sovereign debt denominated in foreign currency, including collateralised liabilities and the debts of state-owned enterprises. The adoption of an IMF programme may be conditioned as a part of a restructuring to underwrite the data, economic plan and the promise of macroeconomic and fiscal supervision.
Lenders will weigh the upfront losses of a debt standstill and restructuring against the total magnitude of
losses in the event of a default. In entering restructuring talks, though, they will also demand to do so on the principle of comparable treatment of creditors in any proposed debt reprofilings and restructurings. Lenders will be mindful that any relief offered does not give preferential treatment to other creditors, especially in the face of new geopolitical power rivalries. This would typically mean that a country in distress asks for debt relief from friendly governments to whom it owes money and then seeks a comparable deal from private lenders.
The Holdout Problem
Over the past decades, there has been progress in governance frameworks to deal with sovereign debt crises, but considerable gaps persist. In the COVID-19 era, the G-20 Common Framework for Debt Treatments apply only to low-income countries (LICs), and even then, do not compel the participation of private creditors. Emerging markets that have undergone debt restructuring most recently (e.g. Argentina and Ecuador) are categorised in academic research as countries with a track record of serial default – i.e. more than two default spells or episodes. Given research evidence that countries that have defaulted on their debt obligations in the past are more likely to default again in the future, creditors have an added incentive to enter into negotiations in such cases.
All told, with the creditor landscape transformed, debt restructuring is still very much a matter of ad hoc negotiations between a sovereign and its creditors.
The creditors are aware of their special legal protection that comes down to a question of money due but not paid. At the same time, creditors too have virtually no choice but to negotiate as there will be inadequate assets to satisfy every creditor’s claims even with a successful legal remedy. In the extreme, ‘vulture funds’ have used litigation as an investment strategy to buy the debt at a hefty discount and pursue full payment through the courts. Confronted with this reality, a negotiated resolution should appeal to both creditors and debtor country.
At the centre of such a coordinated effort will be creditor (especially bondholder) committees. The composition of such committees – inclusive of large institutional investors, hedge funds, etc. – is critical to obtain a relatively quick resolution. However, there are no guarantees of fast and efficient mechanisms, and countries still risk fighting creditor lawsuits from those who may hold out.
Such potential holdout creditors may not necessarily take the view that what is good for the many is always good for the few. A disgruntled holdout creditor has the leverage to cause disturbing headlines, especially when countries resume bond market access once again at some point. Holdout creditors can be reined in through exit consents – where a majority of holders can amend terms, or as more commonly used now, employ collective action clauses (CACs) in bond agreements to bind minority holders. In the latter case, a specified supermajority of holders (usually 75%) can bind a minority to the terms of a debt restructuring. But much depends on whether a debtor country’s outstanding stock of international sovereign bonds contains these clauses. Some countries have also adopted anti-vulture fund legislation that limits holdout creditor recovery as a deterrent.
Net Benefit Calculation
High uncertainty during a restructuring, and the risk of prolonged negotiations means debt restructuring is still the last resort, to be done only if you must. A restructuring is a costly exercise with reputational downsides, loss of market access and more expensive debt issuances, weighed down further by concerns about adverse legal implications. For policymakers, a decisive step can be taken after a careful net benefit calculation of whether a country’s economic conditions are likely to deteriorate further without a restructuring, or whether a timely restructure may reduce the total magnitude of upfront losses and return debt to a sustainable level at the lowest cost to both the country and its creditors.
Link to Talking Economics blog: https://www.ips.lk/talkingeconomics/2022/01/12/sri-lankas-sovereign-foreign-debt-to-restructure-or-not/
Dr Dushni Weerakoon is the Executive Director of the Institute of Policy Studies of Sri Lanka (IPS) and Head of its Macroeconomic Policy research. She joined IPS in 1994 after obtaining her PhD, and has written and published widely on macroeconomic policy, regional trade integration and international economics. She has extensive experience working in policy development committees and official delegations of the Government of Sri Lanka. Dushni Weerakoon holds a BSc in Economics with First Class Honours from the Queen’s University of Belfast, U.K., and an MA and PhD in Economics from the University of Manchester, U.K. (Talk with Dr Dushni – dushni@ips.lk)
In a landmark move towards digital transformation within Sri Lanka’s legal system, the Supreme Court officially launched online payment acceptance via GovPay, at a ceremony held on 15th May 2025 at the Supreme Court Complex in Hulftsdorp, Colombo 12, under the patronage of Chief Justice Murdu Fernando, PC.
This digital initiative enables both legal professionals and general public to make real-time, secure online payments via any GovPay-enabled internet banking, mobile banking platforms and FinTech applications for a wide range of services offered by the Supreme Court including Brief Fees, Certified Copying Fees, Commercial High Court Appeal Filing Fees, Compensation, Cost, Enrollment Fees (Attorney-at-Law), Good Standing Certificate Fees, New Plaint Filing Fees, and Online Payments for Affidavits.
At the initial phase GovPay payments to Supreme Court has been enabled via several online banking platforms and FinTech apps including BOC Smart Pay Mobile App, Peoples Pay Mobile App, NSB Online Banking, Pan Asia Online Banking, Sampath Vishwa Online Banking, HNB PayFast, Seylan Bank Online Banking, DFCC Online Banking, NationsDirect Online Banking / NationsDirect Mobile App, ComBank Digital Online Banking and ComBank Digital Mobile App, NDB Neos Online Banking, Helakuru Mobile App, iPay Mobile App, FriMi Mobile App, Genie Mobile App. The integration with GovPay ensures secure, seamless, and transparent transactions, accessible from anywhere anytime, bringing a new level of convenience and efficiency to the legal community and the general public using courts. Moreover, the entire GovPay digital process, including the receipt which generated via the system are legally valid under the Electronic Transactions Act No. 19 of 2006 (as amended).
Speaking at the launch, Chief Justice Murdu Fernando PC emphasized the significance of this initiative in modernizing the judicial system, stating that “This marks an important milestone in our journey towards a more accessible and technology-enabled judiciary. By embracing digital platforms such as GovPay, we are not only improving efficiency and transparency, but also enhancing public trust and ease of access to all stakeholders of the judicial system” , the Chief Justice stated.
Integration with GovPay aims to reduce the reliance on physical cash transactions, long queues, and administrative difficulties that have historically burdened court users as well as legal professionals. It also aligns with the national agenda of leveraging digital infrastructure to improve public service delivery.
The Supreme Court’s adoption of technology-based payments is expected to serve as a model for similar implementations across other courts of law throughout Sri Lanka. Several high-ranking legal professionals, officials from LankaPay, ICTA and representatives of the legal and banking sectors were present to witness this historic occasion.
This transformation is the result of collaboration between the Supreme Court Registrar, the Registry Staff, the Ministry of Justice, Ministry of Digital Economy and key financial and technological institutions committed to enhancing digital inclusion within public institutions with the support of the Central Bank of Sri Lanka.
As the legal landscape evolves, digital platforms, such as GovPay, will play a critical role in ensuring the justice system remains adaptive, inclusive, and future-ready. The Supreme Court’s forward-thinking initiative is expected to pave the way for comprehensive judicial digitalization nationwide.
Fortude has announced a strategic partnership with Ettos, a leading supply chain traceability platform aimed at enabling fashion businesses to maintain more transparent processes and allowing customers to understand how their products are made. This collaboration will integrate traceability, compliance, and Digital Product Passports (DPPs) into a unified solution, helping fashion brands streamline their supply chains and enhance transparency.
Ettos’ platform simplifies the tracking of raw materials and the verification of sustainability claims. It offers a B2B web platform for managing traceability and compliance, along with a B2C web app that delivers DPPs to consumers via QR codes. Through this partnership, Fortude and Ettos will jointly expand their capabilities in the fashion sector, supporting clients from raw material sourcing to final product delivery.
Adriana Batty, Co-founder of Ettos, said, “We are happy to partner with Fortude, whose expertise in digital solutions and deep roots in the fashion industry align with our vision of creating a transparent global supply chain. Together, we will empower brands and consumers with verifiable sustainability insights.”
With over a decade of experience delivering digital solutions to global fashion brands, Fortude shares Ettos’ commitment to transforming supply chain transparency. Daniel Rodrigo, Senior Vice President Global Technical Consulting at Fortude added, “Our partnership with Ettos reinforces our mission to provide digital solutions that matter. For over a decade, we have been an Infor partner, delivering ERP solutions to numerous global fashion brands. As we broaden our vision to drive digital transformation, this partnership is a significant step toward driving meaningful change for fashion brands seeking enhanced transparency and compliance.”
This partnership marks a significant step forward in meeting the fashion industry’s growing demand for sustainability and transparency. Fortude and Ettos are dedicated to helping brands navigate complex supply chains with confidence, fostering a more sustainable future for fashion.
Turyaa Chennai, a premier five-star deluxe classified hotel under the Aitken Spence Hotels portfolio, celebrates a decade of redefining hospitality in one of South India’s most dynamic urban corridors.
Conceived by the visionary entrepreneur and Late Chairman of Aitken Spence PLC, Deshamanya D.H.S. Jayawardena, Turyaa Chennai was built on the belief that Aitken Spence warmth and world-class hospitality could find a meaningful home in India. Ten years on, his legacy continues—alive in every guest experience, every team member’s dedication, and every milestone the hotel celebrates.
Since its opening in 2015, Turyaa Chennai has become a trusted name in Chennai—offering warm service and contemporary comfort. Strategically located along Chennai’s IT expressway, the hotel has grown into a hospitality landmark for business travellers, international travellers, and local tastemakers. Its vibrant dining concepts, spacious rooms and suites, rooftop leisure areas, and exceptional service standards have made it a preferred address in the city.
To mark its 10th anniversary on 15th of May 2025, Turyaa Chennai is hosting a month-long series of celebrations in honour of its legacy and the people who helped shape it. These include religious blessings, a celebratory dinner for loyal guests and partners, an awards ceremony for team members, and culinary showcases that nod to the hotel’s South Indian and Sri Lankan heritage.
Turyaa Chennai (Aitken Spence Hotels) donates wheelchairs to Tamil Nadu Railways in collaboration with Geo India Foundation.
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