News
Sri Lanka’s debt negotiations stall over GDP growth projections and repayment terms – Nishan de Mel
In a recent televised interview, Nishan de Mel, the Executive Director of Verité Research, stated that holders of Sri Lanka’s International Sovereign Bonds (ISBs) have expressed concerns about specific aspects of the debt sustainability analysis conducted by the country alongside the IMF. This disagreement is one of the key hurdles in reaching an accord with them, he said.
Dr. de Mel said holders of Sri Lanka’s ISBs disagree with the IMF’s and Sri Lanka’s GDP growth projections. They believe that the potential economic growth of the country has been underestimated, he added.
He said that bondholders believed Sri Lanka had underestimated its economic growth potential, and therefore, its capacity to repay debt. “If the GDP growth potential is higher, then we can pay more. The bondholders argue that if Sri Lanka’s economy grows more than the IMF’s projections, then we should agree to pay them more,” he said. He further noted that Sri Lanka has acknowledged this possibility and has provided the bondholders with estimates of higher repayments contingent on achieving greater than projected GDP growth.
According to Dr. de Mel, while Sri Lanka has agreed to higher repayments if GDP exceeds forecasts, it has sought the flexibility to pay less if growth falls short of IMF estimates. There is currently a disagreement regarding the discrepancy between the higher payments Sri Lanka is willing to make and the amount the bondholders expect, centered around this variance in growth projections, Dr. de Mel said..
“This is natural, and we don’t need to panic,” he said.
He also said there are many challenges of forecasting, noting that the results of GDP growth projections rely heavily on the underlying theories and hypotheses used. He mentioned that the IMF had developed its GDP
projections for Sri Lanka by examining other countries that have undergone debt restructuring processes.
“However, neither Sri Lanka nor the IMF has revealed how they came up with these figures. Also, there is no one way of calculating this. If we underestimate the GDP growth, it’s good for Sri Lanka. If GDP growth is overestimated, this benefits the bond holders,” he said.
It was unlikely that IMF would delay the next tranche of the three-billion-dollar financial package due to the delay in coming to an agreement with ISB holders, he said. The main reason why there would be a delay in issuing the third tranche was that Sri Lanka had not kept many promises it has made to the IMF, he said.
The Executive Director of Verité Research said his institution had come up with novel way of debt restructuring, called Governance-Linked Bond. “We will present this to the world during a conference in Paris next month. The basic design of a Governance-Linked Bond is to have a coupon (interest rate) reduction, which is triggered when specific governance actions are achieved by a certain date.
This structure makes the bond “index eligible” (an important feature for bond-holders), as opposed to the Value Recovery Instrument, which has also been mooted in current negotiations. The same structure was recently proposed by bond-holders in a GDP-Linked rather than a Governance-Linked Bond. A good set of criteria for the Governance-Linked Bond will be that they (a) improve the probability of sustainable recovery, (b) are easily observable and verifiable, (c) have a high level of public support.”
The Sri Lanka Navy successfully conducted a diving operation on 19 Jan 26 to inspect and restore the sluice gate of the Bomburuella Reservoir.
Acting on a request from the Department of Irrigation, the Sri Lanka Navy deployed a specialized diving team from the Western Naval Command, for the urgent requirement.
Through concerted effort, the Navy divers successfully cleared accumulated debris, including a significant quantity of wooden fragments, which had impeded the sluice gate mechanism.
Prime Minister Dr. Harini Amarasuriya held a series of high-level bilateral meetings on Wednesday [January 21] on the sidelines of the World Economic Forum in Davos, Switzerland, engaging with representatives of the European Union, the United Nations Development Programme, and the global private sector.
The Prime Minister met with Hadja Lahbib, European Commissioner for Preparedness and Crisis Management. During the meeting, she expressed Sri Lanka’s appreciation for the support extended by the European Union and its member states following Cyclone Ditwa. The Prime Minister also briefed the Commissioner on the key findings of the World Bank’s GRADE report and requested continued EU support for Sri Lanka’s development and recovery efforts.
Prime Minister Amarasuriya also met with Alexander De Croo, representing the United Nations Development Programme. She expressed appreciation for the longstanding partnership between Sri Lanka and the United Nations and acknowledged the UN’s support in flood relief and livelihood assistance. The Prime Minister noted that, following the mandate received at the parliamentary election, the government is focused on meeting public expectations through national rebuilding grounded in public trust and good governance. She further reaffirmed the Government of Sri Lanka’s commitment to strengthening social protection systems and safeguarding vulnerable communities.
In addition, the Prime Minister met with Robert M. Uggla, Chairman of A.P. Moller Holding. The discussion focused on engagement with the private sector and potential areas of collaboration.
These meetings reflected Sri Lanka’s continued engagement with international partners and global stakeholders to support recovery, development, and long-term economic stability.
[Prime Minister’s Media Division]
… alleges Prez trying to control judiciary
Opposition grouping ‘Mahajana Handa’ has accused President Anura Kumara Dissanayake of trying to exercise control over the judiciary by appointing a sitting High Court judge as Additional Secretary to the Justice and National Integration Ministry.
Addressing the media at Dr. N. M. Perera Centre, Punchi Borella, on Tuesday (20) top Opposition spokesman and former External Affairs Minister Prof. G. L. Peiris warned the High Court judge D.M.D.C. Bandara’s appointment was nothing but a direct executive intervention in the judiciary.
Responding to The Island queries, Prof Peiris asked how the government could compel courts to deal with a sitting judge who functioned as Secretary to the Justice and National Integration Ministry.
Prof. Peiris explained that the latest move by the Executive should be examined taking into consideration the attacks on Attorney General Parinda Ranasinghe Jr, PC., the deliberate delaying of the appointment of Auditor General and the controversy over the process of promotions of Judicial Officers, Judges of the High Court and the Court of Appeal in Sri Lanka. Prof. Peiris pointed out that the Bar Association of Sri Lanka (BASL) had raised those controversial promotions with President Anura Kumara Dissanayake.
D.M.D.C. Bandara, Senior Assistant Secretary, Judicial Service Commission, was among altogether 18 High Court judges appointed by President Dissanayake in early Sept this year. The group consisted of 17 Special Class Judicial Officers and a Senior State Counsel serving in the Attorney General’s Department.
Referring to a recent meeting ‘Mahajana Handa’ representatives, including him had with the Mahanayake theras of the Asgiriya and Malwatta Chapters in Kandy, Prof. Peiris said that they had received the blessings of the Mahanayakes to go ahead with what he called a programme of action meant to address major issues.
Prof. Peiris said they would initiate talks with other like-minded political parties and groups in this regard soon. Referring a protest held at the Hulftsdorp on Wednesday (21) demanding the removal of the AG Ranasinghe, Prof. Peiris emphasized that the government’s hand in that demonstration was very clear. President Ranil Wickremesinghe appointed him as the AG in July 2024 with the unanimous backing of the Constitutional Council.
Prof. Peiris said that action was yet to be initiated to appoint new civil society representatives to the Constitutional Council. That issue hadn’t received sufficient public attention, Prof. Peiris said, urging President Dissanayake to come down from his high horse.
Asked whether the President could appoint a sitting judge as an Additional Secretary to a Ministry without consulting the Chief Justice and President of the High Court Judges Association, sources familiar with the issues at hand said that certain appointments could be made on secondment. However, that has to follow the proper procedure, sources said.
The Island sought a response from the Justice and National Integration Ministry to the accusations made by Prof. Peiris on behalf of ‘Mahajana Handa,’ but did not receive one until this edition went to press.
By Shamindra Ferdinando ✍️
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