Sri Lanka has failed to reach an agreement with the bondholders on how to apply the upward and downward adjustments in the proposed Macro-Linked Bonds (MLBs), said Former Governor of Central Bank of Sri Lanka (CBSL), Dr. Indrajit Coomaraswamy.

Speaking at a webinar organised by CT CLSA on yesterday (17), he said that the authorities have failed to reach an agreement with the bondholders on how to apply the upward or the downward adjustment in the MLBs and on the distribution of benefits if Sri Lanka outperforms the GDP projections.

However, he said that it is very important not to become very pessimistic about the news flows that have come out in the last couple of days about the external debt restructuring as the contentions that arose are not related to the core of the restructuring package.

“If you unpack it very carefully, it is certainly a little road bump but I don't think it's a barrier,” he reiterated.

Dr. Coomaraswamy said that the private creditor negotiations identified four points of contention, none of which are in terms of maturity extension, coupon reduction or a haircut.

“So I am assuming that  there was no problem in terms of the basic structure that the Government has put forward in its proposal,” he said adding that the International Monetary Fund (IMF) has stated that the Government proposal is in line with its Debt Sustainability Analysis (DSA)

Moreover, he said that it is unlikely the official creditors including China would put pen to paper on the Memorandum of Understanding (MOUs) until they know the structure of the private creditor restructuring, to be sure of appropriate comparability.

A regulatory filing by the Sri Lanka Government said that Sri Lanka wants to reach common ground in the next few weeks ahead of the second review of the IMF programme by the Executive Board after the first round of talks with bondholders failed on Tuesday (16).

Further, Dr. Coomaraswamy said that the condition attached to the Executive Board approval of the second review of the IMF is that there should be a demonstration of progress and continuing negotiations in good faith, “and I feel those conditions have been met,” he said, as the authorities had an engagement and they are going to meet again.