Swasthika reads less as more in restructured debt payments

Fact Check

Swasthika Arulingam, a candidate from the People’s Struggle Alliance at the 2024 General Elections, claims that Sri Lanka’s debt repayments under the restructuring agreement are higher than before the restructuring.

This claim is based on calculations that assume the entire debt restructuring follows the global option (see additional note) outlined in the September debt restructuring agreement with the bondholders, which preceded the final restructuring deal. Accordingly, to verify this claim, FactCheck.lk consulted the September debt restructuring agreement with Sri Lanka and the International Sovereign Bond (ISB) holders published by the Ministry of Finance and evaluated the claim on the global option.

Two key measures determine whether a country has effectively reduced its debt burden:

1. Capital repayment reduction: Whether the total principal amount to be repaid has decreased.
2. Interest reduction: Whether the interest rate on the interest payments per year have been reduced.

In Sri Lanka’s case, the September debt restructuring agreement had reductions in both areas.

First, capital repayment was reduced compared to the original amount—from USD 12,550 million to USD 12,281 million (2.1% reduction). Second, nominal annual average interest payments were reduced from USD 500 million to USD 393 million (21.4% reduction). A more precise way to state the interest reduction is that the weighted average coupon (interest rate) reduced from 6.7% on the original capital to 4.0% on the agreed restructured (reduced) capital.

Additionally, the repayment timeline was extended from 8 years to 16 years, effectively doubling the repayment period.

Arulingam’s error is that she compares interest payments due over the extended repayment period against the interest payments that were due over the original shorter repayment period.

While it is the case that more will be paid in interest over 16 years than would have been paid in 8 years, this does not support the claim that the debt obligations were not reduced. Capital was reduced marginally, and the interest rate was reduced substantially relative to the interest rate on the original debt prior to restructuring.

Therefore, we classify Arulingam’s claim as FALSE.

 

*FactCheck.lk’s verdict is based on the most recent information that is publicly accessible. As with every fact check, if new information becomes available, FactCheck.lk will revisit the assessment.

Exhibit 1: Changes to International Sovereign Bond repayment before after restructuring

Source: London Stock Exchange, Ministry of Finance, Economic Stabilisation and National Policies, Verité Research Calculations

 

Additional note: Arulingam’s calculations exclude the local option, which was included in the final debt restructuring. At the time the claim was made, it was not possible to determine the take-up of the local option. Therefore, it is assumed that the entire debt restructuring follows the global option, and FactCheck.lk has conducted its calculations based on the same assumption.