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IMF deal: December deadline unlikely

13 Nov 2022

  • Bilateral and private creditors’ agreement is key
  • Implementation of prior agreements also needed
By Shenal Fernando  The International Monetary Fund (IMF) has revealed that the approval of the Executive Board with regard to the Extended Fund Facility (EFF) arrangement sought by Sri Lanka will depend on assurances from official bilateral creditors to restore debt sustainability and good faith effort on the part of Sri Lanka to reach a consensus with private creditors in relation to the debt restructure. Responding to several queries by The Sunday Morning, Senior Mission Chief for Sri Lanka Peter Breuer and Mission Chief for Sri Lanka Masahiro Nozaki stated that since Sri Lanka’s public debt had been assessed as unsustainable, IMF Executive Board approval would be contingent on assurances from official bilateral creditors to restore debt sustainability and a good faith effort on Sri Lanka’s part to reach a collaborative agreement with private creditors.  They pointed out that in addition to the above requirement, Sri Lanka would also have to implement certain prior actions agreed to in the Staff-Level Agreement (SLA) in order to obtain Board approval. Commenting further on the possibility of Sri Lanka obtaining IMF Executive Board approval by end 2022, they stated: “It is difficult to predict the timeline as the process of debt discussions takes time. All parties involved in the process should move expeditiously, so that Sri Lanka can emerge from the crisis as quickly as possible. Sri Lanka’s soonest return to sustainable growth will help to mitigate the worsening humanitarian crisis and also help restore the country’s repayment capacity.”  While the official Government stance appears to be that Sri Lanka will obtain Executive Board approval by end 2022, it appears that the set target will most likely not be met due to the difficulties faced in arriving at an agreement with its official bilateral creditors. This was confirmed by President Ranil Wickremesinghe during the previous week when attending a forum of tea factory owners in Colombo, where he revealed that obtaining bilateral assurances with regard to debt sustainability would take time. “If we can move and come to an agreement by December – which means coming to an agreement by mid-November and going up to the IMF Board in mid-December – we will gain a big advantage,” Wickremesinghe stated. “However, I don’t know whether we can do it for the simple reason that in China, the focus [on debt restructuring] has started now, after the party conference. However, we must aim to have it by January.” Sri Lanka’s foreign debt mix is unique in comparison to most other countries facing similar default crises because a significant portion of its foreign public debt is owed to non-Paris Club countries (India and China).  


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