Home » IMF bailout package preparation for Sri Lanka gains significant progress

IMF bailout package preparation for Sri Lanka gains significant progress

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A new IMF-supported programme to extend the extended fund facility to Sri Lanka is being developed to restore macroeconomic stability and debt sustainability, while protecting the poor and vulnerable, safeguarding financial stability, and stepping up structural reforms to address corruption vulnerabilities and unlock the country’s growth potential.

An International Monetary Fund (IMF) mission team led by Messrs. Peter Breuer and Masahiro Nozaki visited Colombo from June 20 to 30, 2022 to discuss IMF support for Sri Lanka and the authorities’ comprehensive economic reform program. Ms. Anne-Marie Gulde-Wolf, Deputy Director of the IMF’s Asia and Pacific Department, participated in policy discussions.

The IMF team had constructive and productive discussions with the authorities on economic policies and reforms to be supported by an IMF Extended Fund Facility (EFF) arrangement.

Significant progress was made, and discussions will continue virtually towards reaching a staff-level agreement on the EFF arrangement in the near term.

Latest talks with Sri Lanka has made significant progress towards developing a policy package to stabilize the country the International Monetary Fund said, but the country also has to move forward on debt restructuring to finalize a bailout.

“The staff team and the authorities made significant progress on defining a macroeconomic and structural policy package,” an IMF statement said.

“Because public debt is assessed as unsustainable, Executive Board approval would require adequate financing assurances from Sri Lanka’s creditors that debt sustainability will be restored.”

Sri Lanka has appointed financial and legal advisors to negotiate with creditors.

At least one sovereign bond holder with over 250 million dollars has gone to court seeking full payment.

The team had constructive and productive discussions with the Sri Lankan authorities on economic policies and reforms to be supported by an IMF Extended Fund Facility (EFF) arrangement.

The staff team and the authorities made significant progress on defining a macroeconomic and structural policy package.

The discussions will continue virtually with a view to reaching a staff-level agreement on the EFF arrangement in the near term. Because public debt is assessed as unsustainable, Executive Board approval would require adequate financing assurances from Sri Lanka’s creditors that debt sustainability will be restored.

“In this context, discussions focused on designing a comprehensive economic program to correct the macroeconomic imbalances, restore public debt sustainability, and realize Sri Lanka’s growth potential. Discussions advanced substantially during the mission, including on the need to reduce the elevated fiscal deficit while ensuring adequate protection for the poor and vulnerable.

Given the low level of revenues, far-reaching tax reforms are urgently needed to achieve these objectives. Other challenges that need addressing include containing rising levels of inflation, addressing the severe balance of payments pressures, reducing corruption vulnerabilities and embarking on growth-enhancing reforms.

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