Sri Lanka banks on IMF deal to tap frozen billions

AFP: Sri Lanka voiced hope yesterday that a long-awaited International Monetary Fund (IMF) bailout would be finalised soon and help unfreeze billions of dollars in foreign aid for projects suspended since last year.

Government Spokesman Bandula Gunawardana told reporters that the IMF was expected to give its board approval for a US $ 2.9 billion bailout agreed at a staff level in September.

“We are confident that the IMF board will give its approval,” the minister said a day after the Washington-based lender confirmed Sri Lanka would be taken up at its March 20 board meeting. IMF Managing Director Kristalina Georgieva said in a statement that she welcomed the progress by Sri Lankan authorities in grappling with an unprecedented economic crisis.

“I look forward to presenting for approval Sri Lanka’s IMF-supported programme to our Executive Board on March 20,” she added. Gunawardana said that after the approval was secured, Colombo expected the immediate release of billions of dollars in bilateral aid and loans that have been frozen since the South Asian nation defaulted on its US $ 46 billion external debt in April.

“Our problems can’t be solved with this US $ 2.9 billion but what is really important for us is the endorsement of the IMF that our economy is now on the right path,” he said.

“An amount more than the IMF bailout can be unlocked after we get the IMF certificate.” Japan suspended funding a US $ 540 million airport expansion, while millions of dollars’ worth of foreign-funded road construction was also halted after Colombo declared bankruptcy in April.

Sri Lanka’s largest single bilateral creditor, China, announced that it had on Monday provided financial assurances required by the IMF to ensure the island’s foreign debt was sustainable.

Gunawardana said it was still unclear how official creditors, including China, Japan and India, would restructure their loans but it would be in line with the IMF’s debt sustainability analysis.

“Some may agree to a haircut, others could give a debt moratorium, reduce interest rates or have a combination of these,” Gunawardana said. “This is yet to be worked out.”

President Ranil Wickremesinghe, announcing in Parliament on Tuesday that China had agreed to restructure its debt, warned that he had no option but to seek the IMF bailout.

An unprecedented economic crisis has seen Sri Lanka’s 22 million people suffer acute food, fuel and medicine shortages, along with extended blackouts and runaway inflation.

Angry protests over economic mismanagement led to the toppling of then-President Gotabaya Rajapaksa, who fled the country and later resigned in July. Wickremesinghe, who succeeded Rajapaksa, began cracking down on anti-government protests and pushed through sharp tax and tariff increases demanded by the IMF as a precondition for the bailout.

“We took many extremely difficult economic measures to stabilise the economy,” he said Tuesday. “The suffering caused by this continues for everyone in our society.”

Fuel is still rationed and essential medicines are in short supply, as the country maintains strict controls on imports to save foreign exchange. Inflation is down from its highs of 70 percent in September but is still around 50 percent.
Wickremesinghe said the country needed US $ 6-7 billion annually until 2029 to repay its loans but was unable to honour the debts.

“We do not have the foreign exchange to pay this debt. Thus, we need the IMF to continue the agreed debt sustainability discussion with foreign creditors,” he added.