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Creditors unsure about SL's ability to meet IMF targets

26 Sep 2022

  • Clifford Chance, Finance Ministry brief creditors on IMF targets
  • Sources disclose doubts over ability to reach primary balance target
  • Governor defends target, says can be achieved in the long term
By Imesh Ranasinghe    Sri Lanka’s creditors expressed concern over the country’s primary balance target of 2.3% by 2025 and higher forecasted inflation by the end of 2023 announced at the presentation held by the Sri Lankan Government (GoSL) last Friday (23) with said creditors, revealed an official who attended the meeting on behalf of a leading local bank. Speaking to The Morning Business, the source said that the creditors raised questions about achieving the primary surplus of 2.3%, which was one of the main targets given by the International Monetary Fund (IMF) under the staff-level agreement reached with the GoSL. However, Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe has defended the target, stating that it is a long-term target to be achieved by 2025 and it will be achieved through a gradual increase in the primary balance over the next few years. The CBSL Governor has also stated that the Government is looking at increasing revenues, while at the same time being mindful of providing relief to the vulnerable. Sri Lanka is expecting a primary deficit of 0.7% by end of 2023, as per the forecast presented at the presentation, while a surplus of 0.8% is expected to be achieved by 2024. Also, creditors such as the local banks were concerned about higher-than-expected inflation forecasted by end of 2023 to be at 29.5%, indicating that the interest rates will remain elevated till at least the end of 2023. Inflation is forecasted to be at 48.2% by the end of 2022 and only reach single digits (6%) by 2024. Further, the official said that when a question was raised on domestic debt, the CBSL Governor said that the Government is looking at the domestic debt very carefully with the assistance of the debt advisors, moving away from his previous stance of not touching domestic debt. However, the official said the question raised or the answer given by the Governor did not specify whether rupee debt that is being looked at as dollar-denominated Sri Lanka Development Bonds (SLDBs) are also part of domestic debt. “The perimeter of Sri Lanka’s debt exercise is still being considered, with the assistance of the debt advisors (Clifford Chance and Lazard),” Dr. Weerasinghe said in response to the question raised on domestic debt at the creditor presentation. He also said that the issue of domestic debt is being looked at very carefully given the impact it may have on the stability of Sri Lanka’s banking sector, and the overall macro-fiscal framework. Sri Lanka expects to receive the IMF Board-level approval on the Extended Fund Facility (EFF) by mid-December 2022 and reach the final agreement with creditors by the second quarter of 2023. According to sources, and as mentioned in the presentation, Sri Lankan authorities have already had one-to-one meetings with the creditors before the presentation and have signed  Non-Disclosure Agreements (NDA).


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