Sri Lanka has made significant strides in implementing economic reforms, positioning itself for a swift advancement toward the upcoming third review of the Extended Fund Facility (EFF) program, a senior official from the International Monetary Fund (IMF) announced on Thursday.
Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, revealed that he recently led a high-level team to Colombo to engage with the new government following its recent inauguration. He emphasized that the discussions have been productive, continuing throughout this week during the IMF-World Bank Annual Meetings.
Srinivasan highlighted a broad consensus, even unanimous agreement, on the progress Sri Lanka has made since facing severe challenges in 2022. “Sri Lanka has come a long way in undertaking reforms that have led to significant gains,” he stated.
He noted that the country has experienced positive growth over the last four quarters and a decline in inflation. “The new government is committed to safeguarding and building on these hard-won achievements under the program,” Srinivasan said.
Under the EFF program, specific elements address key priorities of the new government, including social protection initiatives. However, he added that discussions about the program’s details are ongoing and will continue during the meetings in Washington.
“We are encouraged by what we have heard so far and are hopeful that we can move quickly toward the upcoming third review,” he told reporters at a press briefing during the IMF and World Bank annual meetings.
When asked about Sri Lanka’s debt restructuring, Srinivasan noted that the government has reached agreements with official creditors and an agreement in principle with private creditors. The next step involves formalizing an agreement with all creditors.
“This represents a significant step forward. However, there is much work to be done in continuing with reforms, as there is still a long journey ahead before achieving strong and sustainable recovery,” he stressed.
Regarding macro-linked bonds, Srinivasan explained that negotiations are conducted between the country’s creditors and their advisors. “Our role does not extend to the specifics of the instruments they negotiate. Instead, we focus on ensuring that these instruments align with our program targets related to debt and maintain comparability of treatment across creditors.”
He acknowledged the growing popularity of macro-linked bonds but noted that their adoption varies by country, depending on how creditors and advisors approach the process. “It’s not for me to predict that this will be the future of all debt restructuring. Practices differ from one country to another, and we’ve seen various types of bonds exchanged in different contexts,” Srinivasan concluded.
