Sri Lanka's dollar bonds experienced a significant decline following the election of Anura Kumara Dissanayake as president on September 23, 2024. Investors are concerned that his victory could lead to a reassessment of the terms of the country's $2.9 billion International Monetary Fund (IMF) bailout and ongoing debt restructuring efforts.
Dissanayake, representing the National People's Power (NPP) alliance, took office promising changes as the nation strives to recover from its worst economic crisis in over seventy years. Early trading saw shorter-dated bonds drop more than 4 cents on the dollar, with the 2025 maturity falling 2.125 cents, marking its largest daily decrease since mid-April.
The IMF welcomed the previous government's agreement with international bondholders and expressed readiness to collaborate with the new administration. However, JPMorgan analysts noted that the NPP intends to renegotiate aspects of the IMF program, raising concerns about the future of the debt restructuring deal finalized just a week prior.
Investor anxiety is heightened by the potential for the new government to alter the recently agreed-upon terms with creditors. While the Sri Lankan rupee strengthened by 0.3% against the dollar and the main stock index gained over 1%, uncertainty surrounding the election has negatively impacted market confidence.
As the IMF prepares for a review of reform progress on October 1, the implications of Dissanayake's presidency on both the economy and international relations remain to be seen.