Sri Lanka’s central bank is facing a financial crisis, with the country’s massive debt standing at approximately $83 billion. In an effort to restructure its debt, the central bank has requested foreign investors holding its international sovereign bonds to accept a 30% reduction in the amount owed to them.
This means they will receive only $70 for every $100 owed. The central bank is also seeking similar concessions from holders of its other dollar-denominated bonds.
While this request for a haircut may face resistance from some bondholders, the Sri Lanka’s central bank believes it is crucial to avoid a default. Sri Lanka’s economy would suffer greatly from a default, leading to further hardships for its citizens.
To give bondholders time to consider the offer, the central bank has set a deadline of August 15 for accepting the haircut. If the offer is rejected, the government will resort to legal action.
The response of bondholders to this request remains uncertain. However, the central bank’s decision to propose a haircut indicates the government’s determination to restructure its debt and revive the economy. Such measures are vital for Sri Lanka to avoid default and steer the country towards a path of financial stability.
