SL currently negotiates with bilateral and private creditors in good faith-IMF

Sri Lanka is currently negotiating with both bilateral and private creditors in good faith with the debt restructuring process expected to be completed before the first review of the EFF programme in September or October this year.

This was disclosed by Director of the Asia and Pacific Department of the International Monetary Fund (IMF) Krishna Srinivasan when he addressed a media briefing in Colombo on Monday with the IMF staff team visiting Sri Lanka.

“Given a weak external environment and domestic policy tightening, aimed at restoring macroeconomic stability, the economy is expected to contract by 3 per cent in 2023, before registering a modest growth of 1.5 per cent in 2024,” he pointed out.

“Prospects hinge quite critically on the implementation of the economic reforms programme,” Mr. Srinivasan said.

The restoration of public debt sustainability including through a debt restructuring to ensure stable financing of the government’s operations is the second most important pillar among five pillars under the reform programme supported under the US$ 3billion EFF arrangement of the IMF.

The domestic debt optimisation operation involving T-Bills held by the Central Bank (CB) and Treasury Bonds (in the context of a voluntary exchange operation) will also be discussed during official meetings with the visiting IMF team in Colombo on May 12 -23.

Only T-Bills held by the CB (equivalent to 62.4 per cent of total outstanding T-Bills) will be considered for debt treatment, a senior Finance Ministry official disclosed.

All other T-Bills are excluded from the envisaged operation. All T-Bonds may be considered for participation in a voluntary domestic debt optimisation, he said.

Measures designed to minimise impact on banks and preserve financial stability and the impact on the domestic financial sector will be carefully assessed by the authorities.

The first pillar, an ambitious revenue-based fiscal consolidation, which is accompanied by stronger social safety nets, fiscal institutional reforms, and cost recovery-based energy pricing to ensure the state’s ability to support all its essential expenditure is now underway.

A multi-pronged strategy will be implemented to restore price stability and rebuild reserves under greater exchange rate flexibility to alleviate the burden of inflation, particularly on the poor..

Polices have to be devised to safeguard financial sector stability, to ensure that the financial sector can play its key role in supporting economic growth.

Structural reforms are on the cards to address corruption vulnerabilities and enhance growth. Anti-corruption and governance reforms are imperative to ensure the hard-won gains from the reforms, it was stated. (Bandula)