IMF tells Sri Lanka to work “expeditiously” to gain debt relief from creditors

IMF mission chief for Sri Lanka Masahiro Nozaki (left) and senior mission chief Peter Breuer addressing the media at the Central Bank premises yesterday. Pic by Kithsiri de Mel

• Says disbursement of any IMF funding contingent upon reaching a deal with creditors and setting the reform process in motion 
• SL enters staff-level agreement with IMF fora potential 48-month US$ 2.9 billion Extended Fund Facility (EFF)
• “The staff-level agreement is only the beginning of a long road ahead for Sri Lanka to emerge from the crisis”- IMF senior mission chief 
• Says if creditors failed to provide relief it will deepen SL’s crisis and undermine its repayment capacity even further 

By Indika Sakalasooriya
The International Monetary Fund (IMF) yesterday said Sri Lanka should move forward “expeditiously” to secure debt relief from its creditors to ensure debt sustainability as disbursement of any IMF financing is contingent upon that and the reforms carried out by the authorities to restore macroeconomic stability.

Sri Lanka yesterday entered a staff-level deal with the IMF for a potential 48-month US$ 2.9 billion Extended Fund Facility (EFF), subject to the approval of the IMF management and the executive board. 

“The staff-level agreement is only the beginning of a long road ahead for Sri Lanka to emerge from the crisis,” IMF senior mission chief for Sri Lanka, Peter Breuer told reporters in Colombo.

He said Sri Lankan authorities have already begun the reform process, and stressed on the need to continue on that path with the support of all segments of the society.

In tandem with the reform process, Breuer also said the debt restructuring negotiations with Sri Lanka’s creditors—both official and private—should get underway immediately with the support of the legal and financial advisors appointed by the authorities. 

“Once these financing assurances (from creditors) are secured, then we can move to a disbursing arrangement that can be considered by the executive board, and then ultimately disburse,” he said.

If creditors failed to provide these assurances, Breuer said it will deepen Sri Lanka’s crisis and undermine its repayment capacity as the resources available at the country’s disposal to repay will further diminish. 

“So, it is actually in the interest of all creditors to collaborate with Sri Lanka, so that Sri Lanka could emerge from this crisis as quickly as possible and regain its repayment capacity and service its debt,” he pointed out.  

Sri Lanka’s debt situation is a unique one, as much of its debt is outside the Paris Club creditors. Sri Lanka owes large sums of moneys to India and China, who are not Paris Club members. While India has signaled its liking to provide Sri Lanka with debt relief, China’s position to this day remains unclear.  

At Sri Lanka’s request, Japan has come forward to organise a Sri Lanka creditors’ conference to help the island nation emerge from the worst economic crisis since its independence. But, it is not clear whether China would join this conference. 

Meanwhile, the reform programme Sri Lankan authorities have come up with and supported by the IMF includes fiscal consolidation via major tax reforms, cost-recovery based pricing for fuel and electricity, implementation of targeted safety nets for the vulnerable, data driven-monetary policy, and a flexible exchange rate. The policy package also undertakes to assure Central Bank’s autonomy and reduce corruption vulnerabilities.