Domestic debt optimization to be conducted on a voluntary basis based on consultations with major Bondholders

The Authorities are exploring options for a domestic debt optimization (DDO) operation aimed at liquidity relief while preserving financial stability to avoid further eroding of Sri Lanka’s repayment capacity and it is envisaged that this DDO will be conducted on a voluntary basis and be based on the consultations with major T-Bonds holders, the Central Bank Governor and Secretary to the Treasury said in a statement.

The statement issued by Governor and Secretary to the Treasury after the virtual Investor Presentation held today, emphasized that Sri Lanka’s public debt trajectory is set to remain unsustainable in the absence of comprehensive debt treatment.

"Only T-Bills held by the CBSL will be considered for treatment to create some fiscal space and a voluntary domestic debt optimization operation without coercion is envisaged," the presentation showed.

"Sri Lankan government and its advisors will initiate consultations with major T-Bonds holders to gauge options and constraints."

The DDO will help reduce the efforts required from external creditors to restore debt sustainability but taking into account financial stability.

On 20th March 2023, the IMF Board approved Sri Lanka's IMF program, unlocking up to bn in funding from the IMF and other IFIs.