The Members of Parliament will vote on the proposed DDO strategy if a division is requested following the conclusion of the debate from 9.30 a.m. to 7.30 p.m.
Ahead of the parliamentary debate on the DDO plan, the government announced a five-day cooling-off period for commercial banks to prevent panic in the market, to maintain stability and to avoid unnecessary volatility.
The Cabinet of Ministers on Wednesday (June 28) unanimously approved the proposed sovereign domestic debt restructuring strategy for restoring sovereign debt sustainability.
Following two days of extensive discussions on the domestic debt restructuring strategy and its impact, the Committee on Public Finance (COPF), chaired by MP Dr. Harsha de Silva on Friday (June 30), gave its approval for the proposed plan, with amendments binding the Finance Ministry to the proposed plan, ensuring adherence to the approved concept paper and addressing concerns about potential deviations.
The Central Bank governor, Finance Ministry secretary and its officials, creditors including banks, superannuation funds EPF/ETF and insurance funds had been invited to the COPF sessions to discuss the matter at length and to hear their views.
In response to questions on the DDO’s impact on superannuation funds EPF, ETF and the guarantee given to ensure 9% interest rates, the Central Bank governor Dr. Nandalal Weerasinghe assured that their calculations indicate no net present value loss to the EPF. However, COPF chairman has advocated for legislating a minimum return, as done in the 1958 EPF Act.
Further, concerns were raised about the burden falling on the EPF, the largest superannuation fund in the country, without the consent of the depositors.
The COPF chairman, Dr. Harsha de Silva said the committee members called for balanced burden sharing among all creditors, not entirely on the superannuation funds, in order to uphold equity in the DDO.
Meanwhile, COPF members also raised concerns about the government’s commitment to the proposed plan and adherence to the principles of the resolution. Finance Ministry officials acknowledging these concerns, pledged to strengthen the Fiscal Management Responsibility Act (FMRA) for compliance.
Domestic debt restructuring is a key condition in the International Monetary Fund (IMF) program, through which a bailout package of USD 3 billion was approved for Sri Lanka in March 2023. The IMF program unlocks more help from international funding agencies. Accordingly, the World Bank, earlier this week, approved USD 700 million in financing as budgetary and welfare support for Sri Lanka.
Sovereign domestic debt restructuring is expected to smooth the negotiations with external creditors like China and private institutions that the burden is shared while minimizing the impact on the financial sector.
The strategy should be designed to anticipate, minimize, and manage its impact on the domestic economy and financial system. Casting the net wide across claims can help boost participation in the restructuring by lowering the relief sought from each creditor group.
Fiscal costs might have to be incurred in domestic debt restructuring due to the need to maintain financial stability, to ensure the functioning of the banking system or to replenish pension savings.
