The Desirability of Domestic Debt Restructuring

Abstract

Sri Lanka faces a challenge to emerge from the continuing economic crisis of unsustainable public debt. This paper sets out four important reasons to undertake an early domestic debt restructuring (DDR), by way of reprofiling the capital repayments. This will allow Sri Lanka to restore debt sustainability and economic stability more quickly, resiliently, and fairly, under the present dynamics. First, DDR provides a faster pathway toward solvency for the Government of Sri Lanka. Second, it provides the foundations for the stability of the economy (macro stability). Third, it reduces the likelihood of needing subsequent sovereign debt restructuring, and fourth, it facilitates a more equitable sharing of the costs to overcome the economic crisis.