In a bid to restore the nation’s collapsed banking and financial industry, the government on Saturday convened a special session of Sri Lanka’s parliament to examine the domestic debt restructuring (DDR) proposal under consideration.
A crucial requirement of the International Monetary Fund (IMF) plan, under which a $3 billion rescue package for Sri Lanka was authorised in March, is domestic debt restructuring (DDR).
The IMF project makes greater assistance available from global finance organisations. As a result, the World Bank granted $700 million in funding earlier this week as budgetary and social assistance for Sri Lanka, which is now experiencing its greatest economic crisis since gaining independence from the British in 1948.
The proposal was accepted with a few modifications on Friday by the oversight committee of Sri Lanka’s parliament, which includes members of the government and opposition.
After the second day of discussions, which started on Thursday, the majority of the Committee on Public Finance (COPF) voted to support the resolution.
The debt restructuring proposal was accepted by the Cabinet on Wednesday, and it was then sent to the Parliament’s public finance committee.
The domestic debt optimisation (DDO) plan, which aims to reduce debt and stimulate the economy, is the subject of a full-day special parliamentary session.
In the event that a division is sought at the completion of the discussion, the Members of Parliament will vote on the proposed DDO plan, according to local media.
The idea will be revealed to the general public on July 4 after being approved. The suggested proposal has been presented to the superannuation funds EPF (Employees’ Provident Fund) and ETF (Employees’ Trust Fund) for 21 days, until July 25, according to the news site adaderana.Lk.
Under the leadership of Speaker Mahinda Yapa Abeywardena, a special party leaders meeting was convened yesterday night to address parliamentary matters.
To minimise market panic, preserve market stability, and eliminate unneeded volatility, the government declared a five-day cooling-off period for commercial banks prior to the parliamentary discussion.
The suggested approach for restructuring domestic sovereign debt to restore sovereign debt sustainability was unanimously agreed by the Cabinet of Ministers on Wednesday.
The Committee on Public Finance (COPF), led by MP Dr. Harsha de Silva, held extensive discussions on the domestic debt restructuring strategy and its effects over the course of two days. On Friday, the COPF approved the proposed plan with modifications that bound the Finance Ministry to it, ensured compliance with the concept paper that had been approved, and addressed concerns about potential deviations.
According to the research, the restructuring of domestic sovereign debt is anticipated to facilitate discussions with private institutions and foreign creditors like China so that the financial sector’s effect is reduced while the weight is shared.
According to his office, President and Finance Minister Ranil Wickremesinghe convened a flurry of meetings with various sectors to inform them of the DDR project and its impact on the island’s economic development.
In order to guarantee that citizens and industries understand the importance of this crucial financial move by the government, he asked both business leaders and trade unionists to educate the workforce on the DRR plan.
Experts anticipate a notable reduction in interest rates within months, he added, but the precise timetable is still unknown.
As the government began to restructure the $42 billion domestic debt, which is higher than its foreign debt component, Sri Lanka’s banks and financial industry feared the worst. Samagi Jana Balawegaya (SJB), the major opposition party in the cash-strapped nation, had already said that it will oppose the motion in Parliament on Saturday during the discussion.
Sri Lanka, which declared its first sovereign default ever in April 2022, is negotiating a $2.9 billion rescue with the IMF.
According to the national bank of Sri Lanka, the island country’s GDP would contract by 2% this year but grow by 3.3% in 2024.
The epidemic, increasing energy costs, populist tax cuts, and double-digit inflation have all had a negative impact on Sri Lanka’s economy.
A lack of gasoline, food, and other necessities also contributed to the cost of living reaching record levels, sparking widespread demonstrations that led to the overthrow of President Gotabaya Rajapaksa’s administration in 2022.
