The complex network of creditors, politics threatens to restructure Sri Lanka

Social unrest, political uncertainty and a complex web of creditors could scupper Sri Lanka’s push for a swift overhaul of its $12 billion overseas debt, analysts warn, saying the South Asian nation is fast running out of road.

A mix of Japanese, Chinese and Indian loans, a pile of bonds held by overseas investors and talks on an International Monetary Fund (IMF) bailout have added complexity to the South Asian nation’s worst financial crisis since independence in 1948. In a flurry of activity over the past week, the World Bank agreed to provide $600 million to help pay for essential imports, the IMF said the government must raise interest rates and taxes and adopt flexible exchange rates, and Sri Lanka said it has begun debt-refinancing discussions with China.

“We are in discussions with India, the World Bank and (Asian Development Bank) for additional support, so Sri Lanka is in a better position now to manage until IMF funds come.” “Waiting six months with the current state of affairs is not something viable, as we see a very fast and fluid situation on the ground,” said Joe Delvaux, portfolio manager at Amundi Asset Management, which holds the country’s bonds.

The government has yet to pick financial and legal advisers, a key step before debt talks with overseas creditors. Godahewa, who is also the country’s media minister, said the government has had more than 50 responses to its search for financial and legal advisers, “and we will proceed quickly”.