IMF assures support; but immediate funding assistance unlikely

• Finance Minister Sabry says any deal with IMF is contingent on assessment of country’s ability to pay back 
• Sri Lanka needs debt restructuring deals with all its creditors before any IMF deal  
• World Bank assures to release up to US$ 600 mn next 4 months to assist vulnerable sections 
• India could release up to another US$ 2.5 bn for fuel and other essentials

The International Monetary Fund (IMF) releasing a statement during the weekend after the first round of technical level talks with Sri Lankan authorities in Washington, expressed its willingness to engage with Sri Lanka for a medium term economic stabilisation package, but fell short of providing specifics of the timelines and the size of a potential programme support. 

Masahiro Nozaki, the IMF’s Mission Chief for Sri Lanka said the discussions held throughout last week covered the recent economic and financial development in the country and highlighted the need for establishing a credible and a coherent strategy to restore macro-economic stability. 

Nozaki also stressed the need to provide adequate social safety nets for the poor and vulnerable under a likely programme, which could carry tough austerity and most challenging structural reforms, which Sri Lanka had failed to make for the last seven decades.  

The Sri Lankan delegation consisting of Finance Ministry and Central Bank officials held discussions with the IMF and other multilateral agencies from April 18 through 22 seeking both immediate and medium term assistance to come out of the current economic crisis.  

“Going forward, the IMF team will support Sri Lanka’s efforts to overcome the current economic crisis by working closely with the authorities on their economic programme, and by engaging with all other stakeholders in support of a timely resolution of the crisis,” Nozaki said in a statement. 

Meanwhile, Finance Minister Ali Sabry speaking to Sri Lankan media on Friday tamped down any expectations for rapid financial assistance from the IMF but said that they are engaged in “a time consuming, tough process” of obtaining programme support by way of an Extended Fund Facility (EFF). 

But the specifics aren’t yet known as the talks are still at a preliminary level. 
“It takes time for the IMF to release us some amount of money. They don’t just give money. They assess our capacity to pay back,” Sabry said.

As a result, Sri Lanka will now engage with its multiple creditors—multilateral, bilateral and market creditors— holding Sri Lanka-issued sovereign bonds to enter into debt restructuring programmes prior to any new programme support from the IMF.  Sri Lanka is expected to finalise the appointment of financial and legal advisors in the next 10 days and begin debt restructuring processes with each of these creditors thereafter. 

“The IMF team welcomed the authorities’ plan to engage in a collaborative dialogue with their creditors,” Nozaki said in response.

 However, Sabri said they also engaged with other multilateral creditors during their stay in Washington to obtain bridge financing to meet foreign exchange for essential imports as well as to provide assistance to the most vulnerable segments of the society, which became a direct casualty of the skyrocketing inflation and other economic hardships.

“We engaged with others as to how we could raise bridge financing until programme money kicks in,” Sabry said. 
“As a result of the discussions, the World Bank has agreed to release between US$ 300 million to US$ 600 million in the the next four months. This money could directly be channeled into highly vulnerable sections of the society to obtain medicines, food and fertiliser,” he added. 

The team has also engaged with the Asian Development Bank and India for financing assistance and Sabry said the talks with India had been the most fruitful as the latter had pledged to provide US$ 500 million to immediately finance fuel imports as the previous credit line given for fuel imports comes to an end in mid May. 

Sri Lanka’s monthly oil import bill sharply increased with the gradual increase in global oil prices since the re-opening of economies around the world before the prices went above US$ 100 a barrel since Russia invaded Ukraine on February 24.  Besides, the local delegation has also asked for up to another US$ 2.0 billion fresh financing support from India until the country strikes a deal with the IMF and comes out of the worst of the foreign exchange crisis with the gradual restoration of the foreign inflows. 

India last week provided the first deferment of the US$ 400 million currency swap facility settlement, which could get extended up to January 2023 in every two months’ interval.