COLUMBO: Sri Lanka is considering using a special clause to expedite its debt restructuring negotiations, according to people familiar with the matter, as prolonged talks risk delaying a crucial bailout from the International Monetary Fund (IMF).
The bankrupt nation is looking at introducing a “most-favored-nation” clause to assuage doubts among other creditors that China, which holds 52% of Sri Lanka’s bilateral debt, could be offered better terms.
Such a clause would ensure the same terms are extended to all creditors, even if an agreement with them has been sealed before a deal is reached with China.
“Viewed from the other end of the telescope, the clause is intended to deflate any expectation on the part of other lenders that by delaying engagement in the process they may be able to secure a sweeter deal down the road,” Lee Buchheit, a veteran of over two dozen debt restructurings who has also been consulted by the Sri Lankan government, said by email without naming specific creditors.
Sri Lanka is pursuing pacts with commercial and bilateral lenders to meet the conditions for the IMF to disburse a US$2.9bil (RM13 bil) loan.
The South Asian country is undergoing its worst-ever economic crisis and has defaulted on its dollar debt to preserve foreign currency to pay for food and fuel. — Bloomberg
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