Volkswacht Bodensee - Sri Lanka cuts key interest rates, seeks China deal

Transport minister and government spokesman Bandula Gunawardana said Prime Minister Dinesh Gunawardena was in Beijing, the island's biggest bilateral creditor.

"We are in the final stages of restructuring our foreign debt and the prime minister is in China for this purpose," Gunawardana told reporters in Colombo.

The Central Bank of Sri Lanka said the economy was rebounding since the second quarter of last year, helping it to reduce the benchmark lending rate from 10 percent to 9.5 percent.

The deposit rate was also reduced by 50 basis points to 8.5 percent, the first reduction in four months.

The bank said it would boost "the ongoing revival of economic activity", adding that the country was close to finalising a restructuring of its bilateral loans and international sovereign bonds.

Bank Governor Nandalal Weerasinghe said deals with bilateral creditors and bond holders must be completed before June for Sri Lanka to continue with the four-year $2.9 billion International Monetary Fund bailout.

The first $330 million tranche of the programme was drawn down in March last year.

The IMF has urged a speeding up of negotiations to ensure the debt sustainability of Sri Lanka, which defaulted on its $46 billion foreign loans in April 2022.

"We look to see swift progress ... (in) reaching agreement with the commercial creditors, the international bondholders, and also China Development Bank," IMF mission chief for Sri Lanka Peter Breuer said last week.

The central bank said the economy had grown since the second half of last year, to contain the overall contraction in 2023 to 2.3 percent.

That compared with a 7.3 percent shrinkage in 2022, when an unprecedented economic crisis gripped the nation and months of protests forced then-president Gotabaya Rajapaksa to resign in July 2022.

His successor Ranil Wickremesinghe has doubled taxes, cut generous energy subsidies and raised prices of essentials to shore up state revenues.

Tourism and foreign remittances have also picked up. Tourist numbers jumped to 210,000 in December, more than double the 91,900 a year earlier, according to official data.

T.Egger--VB