The Government of Sri Lanka has hired heavyweight financial and legal advisers Lazard and Clifford Chance as it prepares for the difficult task of renegotiating its debts, Reuters reported on Monday (23).
According to a trio of sources, the move is the latest development in Sri Lanka’s worst economic crisis and comes after the country was officially declared in default for the first time ever last week after it halted debt payments.
Meanwhile, Reuters reported that spokespeople from Sri Lanka’s Cabinet and Lazard, which has handled debt talks for dozens of crisis-strained countries in recent years, did not immediately reply to requests for comment while law firm Clifford Chance declined to comment.
Experts and economists have been waiting for the appointment as the country looks to restructure over $12 billion of overseas debt that had been building up for years but become unsustainable when COVID-19 hammered the economy.
The economy of around 22 million people began to show cracks in 2019 after large tax cuts by President Gotabaya Rajapaksa’s government drained the country’s coffers.
The pandemic then shattered the lucrative tourism industry, and rising global prices have left Colombo struggling for essentials such as fuel, medicine, and food.
While there are hopes a deal can be struck to ease the economic crisis, it is unlikely to be straightforward.
A mix of loans from China, India, and Japan, as well as all the bonds held by private investment funds, means long-resisted but now embraced talks with the International Monetary Fund (IMF) could be complex, especially if social unrest worsens.
Other factors have included heavily subsidized domestic prices of fuel and a decision to ban the import of chemical fertilizers, which devastated the agriculture sector. (NewsWire)