Sri Lanka is considering restructuring its local and national debt, President Ranil Wickremesinghe said Friday as the island nation faces the worst financial crisis in its independent history.
The country is expected to resume bailout negotiations with the International Monetary Fund (IMF) in August in hopes of raising $3 billion in funding.
The government is working with its financial and legal advisers Lazard and Clifford Chance to finalize a plan to restructure its foreign debt, including about $12 billion to bondholders.
“Should we look at the local debt? That has far-reaching consequences,” Wickremesinghe told a conference in Colombo. “The financial advisors look at both things.”
Sri Lanka’s central bank governor said on July 7 that the country will not attempt to restructure local debt.
The IMF has also previously warned countries about problems with local debt restructuring, pointing to the implications for domestic banks.
“Restructuring domestic debt is like an operation — you only do it when you have to, and you avoid it when it does more harm than good,” IMF officials said in a December blog post.
Hit hard by the pandemic, which has decimated the vital tourist industry, and by tax cuts introduced by the government of then-President Gotabaya Rajapaksa, Sri Lanka is experiencing its worst economic crisis since independence from Britain in 1948.
Winding fuel queues and rising inflation have become the norm for ordinary Sri Lankans.
Months of unrest toppled Rajapaksa in July after protesters occupied key government buildings in Colombo.
Some protesters began to clear a protest site in the commercial capital of Colombo on Friday, despite police refusing to enforce an order to remove them.
Government lawyers told the Supreme Court on Friday it will not attempt to remove protesters from the site — known as Gota Go Gama, or village, in mocking tribute to Rajapaksa — until Aug. 10, a lawyer involved in the hearing told Reuters.
Police had previously given protesters until 5:00 PM (1130 GMT) Friday to leave the site.
However, some protesters were seen tearing down tents at the site, opposite the country’s presidential secretariat, ahead of the Supreme Court decision.
“We are not going to dismantle because of the police order,” Gayan Madushanka, a 26-year-old protester, told Reuters.
“For the time being, we are leaving this place to continue the struggle that was taking place across the country. The struggle will not end.”
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