IMF says bailout deal requires creditor assurance of restoring SL’s debt sustainability

International Monetary Fund (IMF) during the weekend said adequate assurance from Sri Lanka’s creditors is required that debt sustainability will be restored for the IMF Executive Board to approve a bailout package for the struggling island nation.

“Sri Lanka’s public debt is assessed as unsustainable, approval by the IMF Executive Board of the EFF programme would require adequate assurances by Sri Lanka’s creditors that debt sustainability will be restored,”a brief IMF statement said.
An IMF staff team led by Peter Breuer and Masahiro Nozaki plans to visit Colombo during August 24-31 to continue discussions with the Sri Lankan authorities on economic and financial reforms and policies.

“The objective is to make progress towards reaching a staff-level agreement on a prospective IMF Extended Fund Facility (EFF) arrangement in the near term,” the statement said. 
Central Bank Governor Dr. Nandalal Weerasinghe last week said he was optimistic of Sri Lanka’s ability to strike a staff-level deal with the IMF by the end of this month.

China remains a main sticking point in Sri Lanka’s debt restructuring attempts as China has indicated its unwillingness to take a haircut on its debt. Instead, China has hinted its readiness to provide further loans to settle previous loans. 

The government’s unwillingness to restructure rupee-denominated domestic debt also remains another key sticking point, as particularly foreign ISB holders are demanding equal treatment of all creditors. 
It was reported that Sri Lanka would seek Japan’s assistance in negotiating with India and China, Sri Lanka’s two largest bilateral creditors, to restructure its debt with these two nations.