Creditor cooperation essential for IMF program in Sri Lanka, government says


The Sri Lankan government has said cooperation from the island nation’s creditors will be key to securing a much-needed IMF bailout for the bankrupt country.

On September 1, the International Monetary Fund (IMF) announced that it would provide Sri Lanka with a loan of around $2.9 billion over a four-year period to help the island nation weather the unprecedented economic turmoil.

The bailout is expected to boost the country’s credit ratings and the confidence of international creditors and investors.

In an online interview with creditors, the government said on Friday that assurances from bilateral creditors are required as a precondition for the adoption of the program by the IMF’s executive board. It should materialize by mid-December.

The IMF does not lend to countries whose debt is deemed unsustainable, requiring Sri Lanka to undertake comprehensive initial debt treatment.

“In practice, this requires that financing assurances be given by bilateral creditors, which allows the IMF to be sufficiently reassured that bilateral creditors will support Sri Lanka’s efforts to restore public debt sustainability. “, the government said.

He added that the bilateral financing assurances are a commitment by official bilateral creditors to provide Sri Lanka with debt treatment consistent with the macroeconomic framework and debt sustainability to underpin the envisaged IMF program.

Further explaining, the government maintained that assurances of private financing are deemed to be obtained by the IMF once Sri Lanka makes a “good faith” effort to reach a collaborative agreement with its private creditors – Giving creditors the rapid possibility of contributing to the framework underlying the debt restructuring.

The severe economic recession, low income in Sri Lanka, increased health expenditure and energy needs have led to a worsening fiscal situation. While the drop in growth has partly led to lower income, Sri Lanka has had to increase its spending to protect its population from a double health and energy crisis, primary balance, income and expenditure.

In mid-April, Sri Lanka declared default on its international debt due to the currency crisis. The country owes $51 billion in foreign debt, of which $28 billion must be paid by 2027.

It was said that the international bondholders formed a creditors’ committee comprising nearly 100 members. The group represents more than 55% of international bondholders.

A group of local private banks holding international sovereign bonds also formed a group.

The presentation indicated that the effective way to quickly obtain funding assurances is the creation of a bilateral creditor coordination platform. This would allow them to provide financing assurances and validate the IMF program through an accelerated solution, allowing the Sri Lankan economy to recover.

The country’s economy is expected to contract by 8.7% in 2022 and inflation has recently topped 60%. The impact has been borne disproportionately by the poor and vulnerable, the IMF noted.

Sri Lanka, a country of 22 million people, plunged into a political crisis in July after former President Gotabaya Rajapaksa fled the country following a popular uprising against his government for mishandling the country. economy.

(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)


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