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We want to restructure only foreign debt & it’s a win-win situation, CB Governor reiterates

Central Bank Governor reiterated on Thursday that the government's position about debt restructuring remains the same and intends to restructure only the external debt.

"What the President recently said was that the financial advisors are looking at the scenarios of any restructuring of domestic debt. But the government position still remains that we intend to restructure only the external part," Governor Nandalal Weerasinghe clarified.
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"If we restructure domestic debt then obviously that will have serious implications on the domestic financial sector including the banking sector that will not help even the external creditors to recover whatever the relief that they are going to give us."

When developing economies accumulate more domestic debt, restructuring domestic debt poses a set of challenges compared to restructuring foreign debt.

Considering the far-reaching implications of restructuring domestic debt to the financial sector, it is important to analyze the impact and how to restructure domestic debt while minimizing economic and financial disruptions.

"In the medium term, we are going to have a problem with the capitalization of banks and that will not help the economy to recover," Governor Weerasinghe stressed.

"We need to minimize any impact on the domestic debt so that we can maintain the financial system stability so that economy can recover faster and everyone can recover whatever the dues. That's why our position remains that we want to minimize the impact on the domestic banking sector and domestic economy, EPF, and insurance funds, as a result of restructuring debt. So that is a win-win situation for everyone."

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