The United States government has thrown its support behind the Sri Lankan government's request to postpone a bondholder's lawsuit, stating that it should be put on hold while debt restructuring talks between Sri Lanka and its creditors are ongoing. In a statement of interest filed on Monday in a New York federal court, the US backed Sri Lanka's call for a delay in the lawsuit brought by Hamilton Reserve Bank Ltd., which is seeking full payment and accrued interest on over $250 million in bonds that matured in July 2022.

Sri Lanka plunged into default in May 2022, following the expiration of a 30-day grace period for missed interest payments on two of its sovereign bonds. This default marked the first time Sri Lanka had defaulted on its debt since gaining independence from Britain in 1948. Subsequently, Hamilton Bank filed the lawsuit against Sri Lanka in July 2022.

In July, Sri Lanka petitioned US District Judge Denise Cote to suspend the case for a period of six months. Judge Cote deferred her decision, awaiting the US government's statement of interest, which was filed this week.

The governments of France and the United Kingdom had previously requested the court to delay the lawsuit. In a letter dated September 6, they wrote as members of the Paris Club, an informal group of official creditors that helps coordinate repayments for financially distressed debtor nations. They emphasized that postponing the case was "crucial to ensuring the success of the International Monetary Fund-supported assistance program" for Sri Lanka.

Sri Lanka recently announced the successful completion of its local debt restructuring plan and has since begun negotiations with other holders of its foreign debt, including China and India.

However, Hamilton Reserve has vehemently opposed the bid to postpone the proceedings, arguing that delaying the case "would be both contrary to US policy interests and an exercise in futility."

The outcome of this legal battle will have significant implications for Sri Lanka's ongoing efforts to navigate its debt crisis and reestablish financial stability. As the situation unfolds, stakeholders continue to closely monitor developments in the case of Hamilton Reserve Bank Ltd. v. Sri Lanka.