Govt. makes policy commitments, convince China on IMF bailout
The government will go all out to convince China to support
Sri Lanka with the aim of finalising the International Monetary Fund (IMF) bailout loan although it has to repay more debt to the West as International Sovereign Bond payments, official sources, closely connected to ongoing negotiations, said.
Sri Lanka is set to submit a comprehensive economic reform programme including the policies needed to correct structural imbalances over an extended period along with debt restructuring report prepared by financial and legal advisory firms Lazard and Clifford Chance LLP very soon (this month), a senior official said.
He noted that those negotiations with the IMF were more difficult and complex due to the country’s inability to service debts owing to dwindling reserves and dollar scarcity.
Once a staff-level agreement is reached, the country’s economic reform and debt restructuring plan (structural adjustment) will be submitted to the IMF Board of Directors for approval.
As of 2021, a staggering 81 per cent of Sri Lanka’s foreign debt was owed to US and European financial institutions, as well as Japan and India and 10 per cent owed to China, Finance Ministry data shows.
According to ministry statistics as of the end of April 2021, the majority of foreign debt around 47 per cent is owned by Western venture funds and banks.
The top holders of the Sri Lankan government’s debt, in the form of international sovereign bonds (ISBs), are BlackRock (US), Ashmore Group (Britain), Allianz (Germany), BS Switzerland), HSBC (Britain), JP Morgan Chase (US) and Prudential (US), a senior government official said.
The Asian Development Bank and World Bank were the other debtors which own 13 per cent and 9 per cent of Sri Lanka’s foreign debt, respectively.
Japan, owns 10 per cent of Sri Lanka’s foreign debt with India 2 per cent by the end of last year. According to Sri Lanka’s economic programme (structural adjustment plan), the government has to make at least nine commitments via fiscal policy measures.
According to the plan, major policy decisions are to be taken on increasing income tax rates, reduce income tax thresholds, increase VAT rate and reduce VAT threshold, setting up an independent debt office, continuation of high interest rate, continuation of high interest rate, and no more fixed exchange rates.
The other commitments are the listing of minority stakes of some SOEs in the stock market, making SOEs more transparent, restructure Sri Lankan Airlines, CPC and CEB and consider Samurdhi as more targeted welfare.
The government is also committed to introduce several other policy measures such as to introduce cost-based fuel pricing formula, electricity pricing formula, electricity bill increase, repeal Monetary Law Act and pass the Central Bank bill to reduce political intervention in the banking regulator as well as relaxing import restrictions.
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