Sri Lanka will deliver its agreed-upon programme with the International Monetary Fund (IMF) to its government and private creditors for the first time tomorrow, seeking debt relief as the US $ 81 billion crisis-hit economy strives to recover.
After freezing all external debt repayments on April 12 and defaulting on its debt for the first time in its history the following month, the government entered into a staff-level agreement with the IMF on September 1 for a four-year, US $ 2.9 billion Extended Fund Facility (EFF).
The IMF payments, however, are reliant on Sri Lanka obtaining what the IMF refers to as “debt guarantees” from its creditors.
Sri Lanka intends to restructure around US $ 29 billion, with International Sovereign Bonds (ISBs) accounting for US $ 19 billion.
Speaking at a conference organised by the Post Graduate Institute of Management Alumni (PIMA) in Colombo on Wednesday, Central Bank Governor Dr. Nandalal Weerasinghe stated that Sri Lanka would legally begin the debt restructuring process tomorrow (23).
“We did some background research with the advisors we hired to assist us, Lazard and Clifford Chance.” On Friday, we will make the announcement and hold a public presentation in which we will invite all external creditors and present our programme. “The IMF will also assist us,” he remarked.
He said that in order for the IMF to bring the agreement reached at the staff level to its executive board for approval to begin disbursing funds, Sri Lanka must acquire collective assurance from creditors that they are willing to assist Sri Lanka in its debt restructuring process.
“We expect to treat all of our creditors fairly and equally, and we will seek equivalent relief from all creditors,” Dr. Weerasinghe added.
However, when asked how long the process would take, he stated that “everything is in their hands,” referring to Sri Lanka’s public and private creditors. “The sooner they give us the assurance, the sooner we can expect the IMF to start disbursing money.”
Dr. Weerasinghe stated that if Sri Lanka is able to negotiate an agreement with its creditors, including the IMF, many other investors and multilateral partners will step in and increase their assistance for the country. “That is critical for economic stabilisation,” he remarked.
While expressing optimism in achieving an agreement with creditors and stabilising the economy, Dr. Weerasinghe underlined that Sri Lanka is not yet “out of the woods,” as the country will continue to suffer problems until an agreement with creditors is reached.
Even after that, he continued, Sri Lanka cannot return to its past ways, in which the country ran large budget deficits, current account deficits, and trade deficits as successive Sri Lankan governments and the country’s people lived beyond their means.
“We must modify our thinking going ahead.” We need to fix ourselves. “We should be able to earn enough foreign exchange without having to rely on credit,” he said.
“We’re hoping creditors will give us another opportunity this time, but there won’t be another.” If we do not solve our internal economic imbalances—fiscal, BoP, current account, and import-export—we will be forced to return to them. Argentina, for example, has repeatedly resorted to debt restructuring. “I’m not sure we want to get there,” he continued.