PM tells parliament any IMF deal could happen only in Aug.

6 July 2022 08:17 am Views - 152

• Premier says Sri Lanka enters into IMF talks as a bankrupt nation, hence debt sustainability remains key sticking point  
• Says Sri Lanka’s economy will shrink 20% from its peak and will take 5 years to restore lost output  
• Forecasts inflation at an eye-popping 60% by December this year, public debt at 140% of GDP 
• Donor summit with all-weather friends planned to include India, China & Japan upon reaching staff level agreement 

Prime Minister Ranil Wickremesinghe yesterday told parliament that any deal with the International Monetary Fund (IMF) could only be struck if and when Sri Lanka shows its plans to restore debt sustainability, which he said could happen by August. 

Concluding its staff level engagement with the Sri Lankan authorities, the IMF team last week assessed Sri Lanka’s debt as unsustainable and thus called for adequate financing assurances from the creditors that debt sustainability would be restored before the Executive Board of the IMF approves any rescue package. 
“Unlike in other times, we enter into the negotiations with the (IMF) as a bankrupt country. Therefore we are compelled to confront difficult and complex issues,” Premier Wickremesinghe told the parliament yesterday as part of his regular update of the sorry state of the economy. 

Under normal circumstances, an Executive Board approval for a rescue package is the natural next step after a staff level agreement is reached with the applicant country. 

However, given the circumstances under which Sri Lanka is applying for bail out money, the country has been required to submit the Fund a report, outlining its debt restructuring plans and how it aims to make its debt sustainable over the medium term. “Therefore a staff level agreement is contingent on their level of satisfaction with the debt sustainability report,” Wickremesinghe said. 

The debt sustainability report is currently being prepared by the financial and legal advisors, Lazard and Clifford Chance, and the Premier is hopeful they could submit the final report by August, upon which a staff level agreement could become possible.  The local authorities earlier hoped to enter into a staff level agreement with the IMF by the end of June.

The IMF Executive Board is expected to consider an Extended Fund Facility (EFF) which will run for four years after a staff level agreement is struck.  Upon reaching a staff level agreement, Wickremesinghe said he expects to put together a donor summit with Sri Lanka’s most friendly nations such as India, China and Japan who provide large-scale aid and other funding support to the country.