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)
Business
President briefs Sri Lankan delegation leaving for tariff related discussions in Washington

A Sri Lankan delegation is set to participate in discussions in Washington, D.C., focusing on tariff-related matters, following an invitation extended by the Office of the United States Trade Representative (USTR). This is the second in-person meeting aimed at ongoing efforts to strengthen bilateral trade relations between the two nations.
This initiative builds on several prior virtual interactions held between the USTR and Sri Lankan officials, and underscores a commitment to deepening economic ties. The upcoming talks are anticipated to explore avenues for enhancing trade cooperation and securing favourable outcomes for Sri Lanka, in light of current economic priorities.
Ahead of the visit, a high-level meeting was convened today under the leadership of President Anura Kumara Disanayake to ensure the country’s interests are well represented. The discussion focused on aligning the delegation’s approach with Sri Lanka’s broader economic strategy, ensuring the best possible outcomes from the upcoming discussions.
Key participants at the meeting included Deputy Minister of Finance and Planning Dr. Harshana Suriyapperuma; Secretary to the Ministry of Trade, Commerce, Food Security and Cooperative Development, K.A. Vimalenthirarajah; Duminda Hulangamuwa, Senior Economic Advisor to the President; Governor of the Central Bank Dr. Nandalal Weerasinghe; Secretary to the Ministry of Finance, Planning and Economic Development K.M.M. Siriwardana; Nirmal Vigneshwaran, representing the Attorney General’s Department; and Dharshana Perera from the Ministry of Foreign Affairs.
Details of the discussions in Washington are expected to be made available following the conclusion of the meetings.
[PMD]
Business
“Tourism Renaissance 2025” launched under the patronage of president

Sri Lanka’s largest tourism exhibition, “Tourism Renaissance 2025” (Sancharaka Udawa 2025), was inaugurated on Friday (23) at the Bandaranaike Memorial International Conference Hall (BMICH) in Colombo under the patronage of President Anura Kumara Disanayake.
Organized jointly by the Sri Lanka Tourism Promotion Bureau (SLTPB) and the Sri Lanka Association of Inbound Tour Operators (SLAITO), this event brings together key stakeholders across the tourism industry. It offers a valuable platform for small and medium-scale enterprises, as well as individuals aspiring to enter the tourism sector, to connect with market opportunities and showcase their products and services.
The two-day exhibition, which ends on Saturday [24], features 250 trade stalls and includes participation from a wide range of sectors such as hotels, tour operators, airlines, service providers and educational institutions.
Speaking at the opening ceremony, Minister of Foreign Affairs, Foreign Employment and Tourism Vijitha Herath stated that the government has declared 2025 the “Year of Tourism Renaissance,” with plans to generate USD 5 billion in revenue from the tourism sector by the end of the year.
Also in attendance at the opening ceremony were Secretary to the Ministry of Foreign Affairs, Foreign Employment and Tourism Aruni Ranaraja, SLAITO Chairman Nalin Jayasundara, SLTPB Chairman Buddhika Hewawasam and a distinguished group of invitees including the Ambassador of Germany to Sri Lanka.
Business
‘Be Part of the Plan’ – Sri Lanka’s theme for International Day for Biological Diversity

Sri Lanka celebrated International Day for Biological Diversity with a vibrant national event at the Popam Arboretum in Dambulla, centering on the theme “Be part of the Plan.” The celebration, attended by students, researchers, community members, and officials, was led by Minister of Environment Dr. Dhammika Patabendi, who emphasized the country’s commitment to preserving biodiversity and promoting sustainable development.
Delivering the keynote address, Minister Patabendi said, “As a government, we are committed to taking every possible step to protect our ecosystems and biodiversity. But this is not the responsibility of the government alone. It is a shared responsibility—one that requires the active participation of every citizen.”
The event highlighted the value of community involvement in conservation and featured a series of exhibitions and talks focused on sustainable tourism, traditional food systems, and environmental education. Locally sourced underutilized fruits and indigenous foods were displayed and shared by communities, underscoring the deep ties between biodiversity and traditional knowledge.
The celebration also featured two major guest lectures. Professor Cyril Wijesundara spoke on the current status of biodiversity in Sri Lanka, while Professor Gamini Pushpakumara presented on the promotion of underutilized food crops—a key element in ensuring food security and sustainability in the face of climate change.
“This is more than a celebration,” Minister Patabendi told journalists at the event. “It’s a reminder that sustainable development must go hand-in-hand with nature. We need to build our future with the forest, not against it.”
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