The International Monetary Fund (IMF) stated yesterday that for Sri Lanka to achieve debt sustainability and secure any sort of IMF assistance, a collaborative creditor approach is necessary.
Therefore, they urged for Sri Lankan creditors to join together and support the country’s already announced IMF-backed debt restructuring process, in order to find an immediate solution for the country’s economic crisis and to avoid a possible humanitarian disaster with food and energy shortages.
“The debt owed by Sri Lanka is unsustainable.
Therefore, the existing debt must be restructured in order to improve Sri Lanka’s ability to repay its obligations. Accordingly, the effort requires the cooperation of all creditors,” Peter Breuer, IMF Senior Mission Chief for Sri Lanka, said.
“So prompt, creditor coordination and transparent collaboration is really key to advancing the debt restructuring efforts and to make this interim period as short as possible. So, the objective really here in the interest of everybody is to get Sri Lanka once again, back on a path of strong and durable growth. And for that we really encourage everybody to work together to achieve that objective,” he said.
He made these remarks during a press conference at the Central Bank’s Headquarters in Colombo yesterday (1).
He warned that if Sri Lanka cannot achieve debt sustainability, with a border creditor support the country’s economic crisis will worsen without having proper external funding.
As a result, in order to support Sri Lanka’s economic reform process, the IMF took steps on 31 August to reach a staff level agreement with Sri Lankan Government.
Breuer also said, the 2023 Budget proposals must be consistent with the economic reforms programme and macroeconomic framework underlined by IMF, and that Sri Lanka needs a Government with a mandate to carry out reforms.
He stated that the task of the financial and legal advisers of the Sri Lanka’s debt restructuring process is now to get the creditors’ approval of the debt restructuring action plan, which contains the criteria of debt sustainability in Sri Lanka and has been prepared in accordance with the staff level agreement.
He said, the IMF will not intervene in the debt restructuring process. It is a process involving creditors and the Sri Lankan Government as the debtor.
According to him, based on the creditors’ prompt response to the restructuring process, Sri Lanka can obtain approval from the IMF’s executive board to release 2.9 billion dollars subject to IMF economic evaluation for a period of 48 months.
However, the majority of Sri Lanka’s external debt is held by non-Paris Club countries, such as China and India. As a result, the restructuring process must be approved by all relevant parties.
China has so far not agreed for debt restructuring. Instead, China has expressed its willingness to refinance Sri Lanka to repay its past loans without any changes.
By Ishara Gamage