Sri Lanka’s GDP Bond Can Be Sweeter Still
Linking debt relief to output and growth is fine, but the island deserves a further discount if better governance brings back foreign tourists.
A global test case.
Photographer: Thilina Kaluthotage/BloombergA novel fundraising method used during the US Civil War has a message for distressed sovereigns in the 21st century: For creditors to give more money -- or better repayment terms -- than they otherwise would, borrowers could link the debt to something valuable. The role that cotton played for the American South in 1863 could be essayed by Sri Lanka’s sandy beaches in 2024.
The Indian Ocean island is breathing a sigh of relief. Now that the terms of a debt restructuring have been agreed, the crisis triggered by its May 2022 default is set to end. A deal with private creditors was a condition of the ongoing bailout by the International Monetary Fund. Checking the box would help repair state finances and pave the way for a return to the dollar bond market.