IMF seeks assurance of debt sustainability prior to any lending

• IMF concludes 16-day virtual mission with Lankan authorities 
• Says programme support to SL would require restoration of debt sustainability
• IMF mission chief for SL says even for rapid financing, debt sustainability is a pre-condition
• Welcomes the appointment of financial and legal advisors for debt restructuring 
• Identifies it as an “important step towards restoring public debt sustainability.”

Following the conclusion of the IMF Staff virtual mission to Sri Lanka, the multilateral lender yesterday said Sri Lanka needs to restore debt sustainability prior to any kind of lending to the crisis-stricken island nation. 

“Since Sri Lanka’s public debt is assessed as unsustainable, approval by the Executive Board of an IMF-supported programme for Sri Lanka would require adequate assurances that debt sustainability will be restored,” an IMF statement issued yesterday said. 

An IMF team led by Peter Breuer and IMF’s Mission Chief for Sri Lanka Masahiro Nozaki conducted a virtual mission with the Sri Lankan authorities during May 9-24 on an economic programme that could be supported by an IMF lending arrangement.

The IMF team met with Prime Minister Ranil Wickremesinghe at the concluding meeting, following technical discussions with the economic team led by Governor Nandalal Weerasinghe of the Central Bank of Sri Lanka and Secretary to the Treasury Mahinda Siriwardana. 

The team also met with representatives of the private sector, the financial sector, and development partners.
“The IMF team held technical discussions on a comprehensive reform package to restore macroeconomic stability and debt sustainability. The team made good progress in assessing the economic situation and in identifying policy priorities to be taken going forward. 

The discussions focused on restoring fiscal sustainability while protecting the vulnerable and poor; ensuring credibility of the monetary policy and exchange rate regimes; preserving financial sector stability; and structural reforms to enhance growth and strengthen governance. We expect that these discussions will help the authorities formulate their reform programme,” the IMF statement said.

Meanwhile, IMF welcomed the appointment of financial and legal advisors to negotiate with creditors to restructure the country’s external debt. The Fund identified it as an “important step towards restoring public debt sustainability.”

Meanwhile, the IMF said it will continue to “monitor the economic and political situation in Sri Lanka very closely and engage with the authorities to formulate concrete measures under an IMF-supported programme, as well as broader stakeholders to support a timely resolution of the crisis.”  

“We reaffirm our commitment to support Sri Lanka at this difficult time, in line with IMF’s policies,” it added. 
Meanwhile, IMF’s Mission Chief for Sri Lanka Masahiro Nozaki clarified that the precondition of debt sustainability is also applicable to emergency financing such as a Rapid Finance Instrument, of which Sri Lanka as made a request for. 

“When the IMF determines that a country’s debt is not sustainable, the country needs to take steps to restore debt sustainability prior to IMF lending. Thus, approval of an IMF-supported programme for Sri Lanka would require adequate assurances that debt sustainability will be restored,” he said.