IMF sits down with Sri Lanka to discuss a bailout package
Sri Lanka will negotiate with the International Monetary Fund (IMF) next week on a bailout package of US$ 3 -4 billion while garnering foreign support to secure bridge financing and temporally suspending foreign debt payment, official sources said.
The Government delegation headed by Finance Minister Ali Sabri would be in Washington tomorrow to attend the IMF spring meetings which will begin on Monday.
IMF representatives will conduct meetings with delegations of several countries including Sri Lanka, Egypt and Tunisia to discuss steps that should be taken to tackle the balance of payment issues and debt restructuring.
The government has taken this critical decision of halting the payments for bonds and government –to-government borrowings, evading an immediate interest payment of $200 million on Monday and $1 billion International Sovereign Bond (ISB) in July this year.
The restoration of socio political and economic stability is a prerequisite to receive IMF financial assistance and to discuss measures that need to be taken towards this end, a senior official familiar with foreign aid negotiations said.
Widespread public protests become the order of the day creating social instability as there are shortages of fuel, gas and electricity. Banks and businesses are short of dollars for trade transactions and households are struggling to buy basic food items.
The IMF will impose tight financial conditions raising the foreign reserves for debt servicing at a time when the country is facing unprecedented political unrest, and with the economy in its weakest state in decades, he added.
The amount of funding would depend on the specific goals set by an IMF programme as well as Sri Lanka’s trade and fiscal deficits, analysts said, estimating an annual requirement of up to $3 billion from several multilateral and bilateral sources.
This IMF programme with tough commitments for the borrowing country will be worked out within a period of six months or a year or two, he said adding that funding could arranged within two weeks after agreeing on the programme.
The programme will likely focus on external debt restructuring, greater exchange-rate flexibility and better targeted subsidies, the senior official said pointing out that a transparent energy pricing formula is also included.
“Sri Lanka has already made bridge financing arrangements to receive an an additional $1 billion credit line from India for imports of essential commodities apart from $1-billion credit line already pledged by India,” he disclosed.
The country is also expecting $2.5 billion loan from China at concessionary terms and conditions as bridge financing scheme before restructuring its foreign debts. It will also seek World Bank assistance to boost exports and improve economic competitiveness.
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