IMF reminds Sri Lanka to seal agreements with creditors before second review

• Relevant authorities can’t let out a sigh of relief just yet as a key component of debt restructuring efforts remains incomplete
• Says the negotiation process with creditors needs to continue and be completed as quickly as possible
•  “It›s our strong expectation that there would be an agreement in principle by the time of the second review” – IMF Senior Mission Chief Breuer

• By Shabiya Ali Ahlam

Sri Lanka’s reform initiatives garnered positive feedback from the visiting International Monetary Fund (IMF) team during their recent routine assessment. However, despite this

encouraging development, authorities cannot afford to let out a sigh of relief just yet, as formal agreements with creditors remain pending.

The IMF stressed that under the debt restructuring effort, Sri Lanka must, by all means, have the agreements sealed before the second review takes place. It made clear that negotiations on this matter would not be entertained beyond this crucial juncture.

Visiting IMF Senior Mission Chief Peter Breuer told journalists in Colombo on Friday that to steer forward two important things need to happen. The first is to finalise the agreements in principle, or rather convert them into actual agreements with the official creditors. The second is to reach agreements in principle with the commercial creditors where the bondholders are, of course, a significant proportion. “So our understanding is that negotiations are ongoing, proposals are being exchanged, and that process needs to continue and be completed as quickly as possible.

“It’s our strong expectation that there would be an agreement in principle by the time of the second review,” said Breuer speaking to journalists at a press briefing following the conclusion of the IMF staff visit to Sri Lanka, the first for year 2024.
Earlier on, he noted that having reached agreements in principle with official creditors is an important milestone, and that follows the milestone of having completed the domestic debt operation. Breuer stated that it is essential for the IMF to see a path towards restoring debt sustainability in Sri Lanka as it is a precondition under the bail-out programme.
“It’s really important for that process to be completed soon,” he reiterated.

The review cycle in Sri Lanka’s programme is semi-annual every six months. The island nation completed the first review in December.
Breuer said that the programme is off to a good start with the December review, and the IMF expects the second review to be completed in that cycle.
“We would come back here in the Spring of this year for the formal assessment of the commitments for the second review and then send the paper to our Executive Board for consideration, with that timeline several weeks later. 

So having an agreement (with the creditors) in the next very few months would be quite important,” he asserted.
The mission chief noted that Sri Lanka’s debt restructuring is somewhat similar to having ten different processes that need to be completed in a “very complicated” creditor landscape.
Doing this sequentially makes sense because there is limited capacity to how much can be done, all at the same time.
“Of course, you know, there is engagement with all of these creditors. But now that the first two major blocks are close to being completed, the third one can be tackled,” said Breuer, in a tone of confidence that the necessary agreements can be reached within the set deadlines.