(Bloomberg) -- Sri Lanka, which defaulted on its foreign debt this year, seeks to avoid restructuring local debt, junior finance minister Shehan Semasinghe said.

The government aims to honor its pledge that only foreign debt will not be serviced and local obligations will be met, Semasinghe said in a phone interview on Friday. 

Fitch Ratings on Thursday cut its rating on the nation’s local-currency debt to two levels above default, citing “untenably high” domestic interest costs and challenging financing conditions. A default would put at risk the nation’s financial sector, which owns most of the local bonds.

“The government is fully committed to protect the stability and integrity of the local banking sector and financial system,” Semasinghe said.

Debt Talks

The government may opt to extend maturities or lower coupon payments, rather than reduce face value of local debt, Fitch said. 

The government is focused on bilateral debt restructuring talks, Semasinghe said, as it seeks to secure final approval for a $2.9 billion bailout from the International Monetary Fund. Authorities had completed most of the “prior actions” for the IMF program and are also seeing improvement in revenue, he said.

“It is vital for Sri Lanka to urgently get the IMF approval,” Semasinghe said. “Credit rating agencies also will only look at us positively when we get the IMF program.”

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