Sri Lanka Dollar Bonds Plummet Amid Post-Election IMF and Debt Restructuring Challenges, Reports Reuters

LONDON (Reuters) – Sri Lankan dollar bonds experienced a significant decline on Monday as investors expressed concern that Anura Kumara Dissanayake’s recent election victory could lead to a reassessment of the country’s International Monetary Fund (IMF) bailout terms and debt restructuring efforts.

Dissanayake, who secured his position as president on Monday after winning the election for the National People’s Power (NPP) alliance, pledged to bring change to the nation, which is recovering from its most severe economic crisis in over seventy years.

In early Asian trading, shorter-dated bonds saw some of the most substantial drops, plummeting more than 4 cents on the dollar. By the end of the trading session, the bond maturing in 2025 had declined by 2.125 cents, marking its largest daily drop since mid-April, and was bid at just over 50 cents.

The country’s $2.9 billion, four-year IMF loan arrangement has been crucial for its recovery while also attempting to meet debt restructuring obligations set by the Fund.

The IMF commended the agreement reached by the previous government with international bondholders and expressed eagerness to collaborate with President Dissanayake.

"Economically, the NPP has indicated an intention to renegotiate certain aspects of the $2.9 billion IMF program," noted Toshi Jain from JPMorgan in a client update. "Some leaders within the party have voiced dissatisfaction with the debt restructuring terms, although Mr. Dissanayake has affirmed his commitment to debt repayments."

The IMF is scheduled for a regular review of reform progress on October 1. If successfully completed and approved by the executive board, this would release a funding tranche.

"We will discuss the timing of the third review of the IMF-supported program with the new administration at the earliest opportunity," stated an IMF spokesperson via email.

Another worry for investors is that the new government might seek to renegotiate a debt deal that was finalized with bondholders just last week.

According to Hasnain Malik from Tellimer, "A Dissanayake win presents serious concerns for Sri Lanka’s bonds, raising doubts about the IMF program and whether the new administration will honor the agreement made with creditors on September 19."

Meanwhile, Sri Lanka’s currency and stock market showed resilience on this day. The rupee appreciated by 0.3% against the dollar, and the main stock index rose more than 1%. While Sri Lanka stocks have increased by just over 4% this year, they have faced nearly a 9% decline over the past quarter due to election-related uncertainties.