Sri Lanka’s parliament has given approval to a Domestic Debt Restructuring plan, which is crucial for the country to receive a $2.9 billion bailout from the International Monetary Fund (IMF). The plan was passed with a majority of 122 votes in the 225-member parliament. Last year, Sri Lanka experienced its worst financial crisis in over seven decades, resulting in mass protests, a foreign debt default, and the resignation of its former president, as the country’s dollar reserves reached record lows. To address this crisis and meet the IMF’s requirements, Sri Lanka introduced a domestic debt restructuring framework aimed at reworking a portion of its $42 billion domestic debt. State Minister of Finance Shehan Semasinghe emphasized the importance of this plan in reducing the country’s debt from 128% of GDP to 95% of GDP by 2023, while also protecting banks, depositors, and pensions. However, opposition parties have called for more transparency in the implementation of the plan and stronger protection for pension fund holders, arguing that the restructuring will disproportionately affect pensioners. Despite the challenges, Sri Lanka’s economy has shown improvement since securing the IMF bailout in March, leading to reduced inflation, increased dollar inflows, and a stronger currency. In addition to seeking a 30% haircut from international bondholders, Sri Lanka is also requesting similar concessions from investors in its domestic dollar-denominated notes. The successful implementation of the domestic debt plan is crucial for advancing negotiations with bondholders and key bilateral creditors such as China, Japan, and India. Sri Lanka aims to finalize debt restructuring talks by September.

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