IMF awaiting more details on ISB deal to ensure compliance with debt sustainability

• Finance Ministry says negotiated Joint Working Framework enables a fair sharing of upside or downside between creditors and Sri Lanka
• Says any upside payouts would only occur in a manner that does not compromise Sri Lanka’s longer-term debt sustainability
• Baseline scenario results in an NPV effort of 40% at a discount rate of 11%

The International Monetary Fund (IMF) said it is awaiting further information regarding Sri Lanka’s recent negotiations on the International Sovereign Bonds (ISBs), to ensure compliance with the debt sustainability objectives under its programme for the island nation. 
“We are currently awaiting additional information and will provide the authorities with an assessment of the agreed terms to ensure consistency with the parameters and debt sustainability objectives under the IMF-supported programme,” IMF Senior Mission Chief for Sri Lanka Peter Breuer said, as reported by Bloomberg.

Sri Lanka on Wednesday successfully concluded its second round of talks with the bondholders, reaching a consensus to restructure US $ 12.5 billion in outstanding bonds.  
The agreement reached include the Governance-Linked Bond features, in terms of one or more series of the plain vanilla bond instruments that form part of the Joint Working Framework. The framework proposes a 28 percent cut on the face value and an 11 percent reduction on past interest, with interest payments commencing in September.
According to the Finance Ministry, the negotiated Joint Working Framework enables a fair sharing of upside or downside between the creditors and Sri Lanka, in case of an economic overperformance or underperformance by Sri Lanka. 
It noted that any upside payouts would only occur in a manner that does not compromise Sri Lanka’s longer-term debt sustainability.
“The risk of higher payouts being triggered whilst capacity to pay is weak is mitigated by the inclusion of a control variable. Therefore, any increased payments would be to a great extent be balanced by enhanced capacity to pay,” the Finance Ministry said in a statement released this week. 
The baseline scenario results in a net present value (NPV) effort of 40 percent at a discount rate of 11 percent whilst the scenario with the highest payments by Sri Lanka (resulting from the most significant economic overperformance) would result in an NPV effort of 27 percent at a discount rate of 11 percent, it added.