Five-day Bank Holiday Begins in Sri Lanka for Domestic Debt Restructuring

Sri Lanka began a five-day bank holiday today to allow the crisis-hit nation to restructure $42bn in domestic debt.

The country is facing its worst economic crisis since it won independence from the British in 1948.

There are fears that the government’s restructuring plan could lead to volatility in financial markets.

Debt restructuring can involve the extension of the period over which a loan is repaid.

Central bank governor Nandalal Weerasinghe announced today that the plans include a 30% “haircut” – or reduction – on some government bonds held by international lenders.

A day earlier, he had said banks were excluded from the domestic debt restructuring exercise.

He said the government expects the entire process to conclude while the markets are closed during these five days.

H also assured local depositors of the safety of their deposits and interests as they will not be affected.

Local media quoted analysts as saying that the holiday was announced to provide a suitable buffer for any potential market reactions to significant financial announcements.

Earlier this week, Sri Lanka President Ranil Wickremesinghe reassured the public that the restructuring would “not lead to a collapse of the banking system”.

On Wednesday, his office said the cabinet had approved a restructuring proposal by the country’s central bank, which would be submitted to parliament for approval over the weekend.