19 July 2022 12:00 am Views - 257
The International Monetary Fund (IMF) yesterday said it is in the creditors’ interest for them to come on board with efforts to restructure Sri Lanka’s debt faster, as it would ensure they recover their money at a future date when they help to fast-track the country’s re-emergence from the current economic malaise.
Sri Lanka’s staff-level agreement with the IMF is contingent on how soon all its foreign creditors come on board to restructure their debt to Sri Lanka, which will help to put the country’s debt on a sustainable path, as the government on April 12 announced it didn’t have the means to service its foreign debt.
The IMF repeatedly said restoring debt sustainability is a key precondition before any assistance package to Sri Lanka, as the country now approaches the bailout lender not as a developing economy, as it did in all its previous 16 times but as a bankrupt nation.
“We have already seen the seriousness with which the debt advisors to Sri Lanka are looking into what it would take to reach that resolution,” Georgieva told Bloomberg TV on the sidelines of the G20 summit in Bali.
“We have been reaching out to the biggest creditors of Sri Lanka. My sense is that there is an understanding that it would be better for the creditors to step forward because then there is a better chance for the country to recover and for them to recoup more of their money,” she said.
Besides certain internal policy mishaps, Sri Lanka became an early casualty of self-inflicted global economic woes such as raging inflation, caused by record-high monetary and fiscal stimulus and the virus-related lockdown, which interrupted the global supply chains.
This was then exacerbated by the sanctions repeatedly imposed on Russian supplies of oil and gas by the West, tipping emerging and developing nations into near bankruptcy. Despite the repeated warnings against inflation and job market anomalies, the United States, under the Democrat leadership, passed legislations to send back-to-back stimulus cheques worth of trillions of dollars to people, on top of over US $ 6 trillion worth of monetary stimulus by the Federal Reserve since the initial stages of the pandemic in March 2020. The reversal of the monetary policy by the world’s leading central banks from the beginning of the year to combat record-high inflation, which they created, further tightened the financial conditions for developing nations with high debt and shallow reserve buffers. This resulted in flight of foreign capital from these markets while strengthening the dollar added to their inflation and made it difficult for them to service their debt.
For instance, emerging markets have so far in 2022 seen over US $ 50 billion worth of capital outflows, undoing the entirety of the capital that came into these markets last year. Pakistan, which was also in the brink, entered into a staff-level agreement with the IMF last Thursday for US $ 1.17 billion, with potential for topping-up. It will also be complemented by bilateral support from Saudi Arabia to keep Pakistan’s economy afloat, averting a potential economic catastrophe in the style of Sri Lanka. Speaking on the prospects for Sri Lanka to secure a relief package, as the talks remain stalled since last week, Georgieva called for faster resolution of the political standoff in the country to resume the talks. “We have had good technical engagement between the counterparts and our team in Sri Lanka. We hope that there would be wisdom to come up with a government with authority to move the country out of this terrible crisis,” Georgieva said. “The moment there is a government, a Finance Minister, I am confident that we will move forward with the programme discussions quite quickly because a lot of the technical work has already been done,” she added.