OCC approves debt restructuring of Sri Lanka, paves ways for fund flow

The Official Creditor Committee (OCC) co-chaired by India, Japan and France on Wednesday reached an agreement with debt-ridden Sri Lanka on the main parameters of debt treatment, consistent with those of the IMF-supported Extended Fund Facility (EFF) for the island nation.

This agreement will pave the way for the first review of Sri Lanka's EFF arrangement and enable further flow of funds to Sri Lanka.

The Finance Ministers of India, Japan and France jointly launched the multilateral coordination platform in April 2023 under the G20 India Presidency.

With this debt treatment agreement, India has set a benchmark in expeditious debt resolution for middle-income countries, the finance ministry said in a post on X.

India remains resolutely positive in its commitment to the 'Neighbourhood First' Policy, it said.

Sri Lanka was hit by its worst economic crisis in history when the country's foreign exchange reserves fell to a critical low and the public came out on the streets to protest the shortage of fuel, fertilisers and essential commodities last year.

According to a joint statement, the OCC and Sri Lanka agreed on the main parameters of a debt treatment consistent with those of the EFF arrangement between Sri Lanka and the IMF.

This agreement will allow the IMF staff to present to the IMF Executive Board the first review of Sri Lanka's EFF arrangement and open the way for approval of the second disbursement under the arrangement, it said, adding the OCC commends the Sri Lankan authorities for their continuous efforts in implementing the reforms necessary for their country's return to a sustainable path.

The OCC stands ready and looks forward to formalizing this agreement in the coming weeks in a Memorandum of Understanding (MoU) with the Sri Lankan authorities, it said.

The OCC expects other bilateral creditors to consent to sharing, in a transparent manner, the information necessary for the OCC to evaluate comparability of treatment regarding their own bilateral agreement, it said.

It also expects that the Sri Lankan authorities will continue to engage with their private creditors to find as soon as possible an agreement on terms at least as favourable as the terms offered by the OCC.

These engagements will ensure that the overall debt treatment granted to Sri Lanka is consistent with the IMF programme parameters.

The Paris Club was formed in 1956. It is an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by borrower countries.

The members of the Paris Club which are part of the Official Creditor Committee are representatives of countries with eligible claims on Sri Lanka: Australia, Austria, Belgium, Canada, Denmark, France, Germany, Japan, Korea, the Netherlands, Russia, Spain, Sweden, the United Kingdom, the United States of America.

Representatives of the International Monetary Fund and the Word Bank as well as China attend the OCC meetings. Other observers include the Asian Development Bank, Saudi Arabia and Iran.