IMF expects creditor assurances with perimeters to unlock Lanka’s bailout
Sri Lanka continues its consultations and compromise to reach consensus with all bilateral, multilateral and individual creditors on their formal assurance for a US$ 11.2 billion debt restructure acceptable to the International Monetary Fund (IMF) to unlock the $2.9 billion Extended Fund Facility (EFF), Finance Ministry sources confirmed.
It is essential to reach an agreement with all official bilateral creditors including US, India, China, Paris Club member countries and other bilateral and multilateral creditors on the debt moratorium period and a haircut for debt restructure which is the IMF requisite for the government to get the bailout package
Only India has formally sent to the IMF its assurance which the international agency wants from creditors for providing a bailout loan to Sri Lanka.
China has announced its assurance with a 2-year debt moratorium for the Sri Lanka debt restructuring process but it is yet to extend the formal letter of agreement to the IMF.
What China has offered so far is not enough and it has to extend credible and specific assurances that they will meet the IMF standard of debt relief, informed sources said.
“The other creditors, the Paris Club and China are in the process of giving assurances. That process is making very good progress. It is a matter between the creditors and the IMF,” State Minister Shehan Semasinghe said without commenting on IMF perimeters on the debt restructuring including haircut and moratorium.
“As soon as acceptable assurances of relevant creditors are obtained and remaining requirements are met, including by the Sri Lankan authorities, the EFF arrangement for Sri Lanka can be presented to the IMF’s Executive Board for approval that would unlock much needed external financing,” the IMF Spokesperson said.
The debt restructure deal evades default with the use of a moratorium on debt payments and afterwards the government will have to continue servicing its debt obligations in accordance with their terms, with the exception of a temporary technical suspension of payments.
The 20-40 per cent haircut and at least a 4-5 year debt moratorium will give Sri Lanka immediate debt relief and the $2.9 billion IMF EFF will greatly reduce Sri Lanka’s debt burden of $11.2 billion and help the country’s efforts to tackle the economic crisis, a fact sheet on the agreement with creditors revealed.
For the last 22 years, as a rule, countries that restructured without a default have not obtained a debt reduction, with the exception of the very specific cases of Greece and two small Caribbean nations, IMF sources said But Sri Lanka’s case was different as it is negotiating the debt restructure after declaring preemptive default in April last year and it badly needs emergency debt reduction under the present economic crisis, sources added.
All principal payments on dollar bonds falling due in the EFF 4-year programme period will be postponed upon implementation of the debt operation.
No principal payments will be made until the completion of the EFF. This will free up liquidity and provide the breathing space needed to support economic recovery.
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