Sri Lanka’s President, Ranil Wickremesinghe, has announced a bold proposal to address the country’s debt crisis by seeking a loan repayment pause until 2028. The plan involves deferring payments for five years and then gradually repaying debts from 2028 to 2042.
The country declared bankruptcy in April 2022, suspending repayments on $83 billion in loans during a severe foreign exchange crisis. This led to shortages of essentials such as food, medicine, fuel, and power cuts.
President Wickremesinghe stated, “Our goal is to obtain temporary relief from debt defaults from 2023 to 2027. Subsequently, we plan to diligently work towards repaying the loans in the period from 2027 to 2042.”
By 2022, Sri Lanka had to repay about $6 billion in foreign debt every year, amounting to about 9.5% of GDP. The government aims to reduce debt payments to 4.5% of GDP through negotiated debt restructuring.
Despite some improvements in economic indicators, high taxes, currency devaluation, and high unemployment continue to impact Sri Lankans. The government is currently in talks with private creditors seeking a final agreement.
Since Wickremesinghe took office in July 2022, he has managed to restore electricity and alleviate shortages of essentials. The currency has strengthened, inflation has dropped, and interest rates have fallen. However, public anger over heavy taxes and the high cost of living remains a challenge.
Wickremesinghe also hopes to exempt school books, equipment, health equipment, and medicine from an 18% Value Added Tax to ease the burden on the public. Sri Lanka is currently under a four-year bailout program from the International Monetary Fund, with promises of debt forgiveness from major creditors like India, Japan, and China.
