Private creditors to block IMF next tranche to Sri Lanka

By: Staff Writer

February 03, Colombo (LNW): The International Monetary Fund (IMF) could hold back the next tranche of funding for Sri Lanka under the Extended Fund Facility (EFF) if the government fails to show good faith and hold constructive talks with private creditors.

Several private creditors said that while the Government has been having extensive talks with bilateral creditors, including China, similar discissions have not been held with the private creditors.

“The size of private creditors is very significant and Sri Lanka cannot rely only on IMF or China money,” sources said.

Senior Mission Chief of the International Monetary Fund (IMF) Peter Breuer had said recently that the IMF anticipates that Sri Lanka will secure an agreement with its commercial creditors, including bondholders and the China Development Bank, ahead of the next review.

The Government has gained momentous progress on the debt restructuring process with the successful completion of the Domestic Debt Optimisation (DDO) which is expected to extend the maturity of domestic debt and reduce the stress on government finances, Central Bank Governor Nandalal Weerasinghe disclosed recently

However several private creditors rejected this claim stating that they  will do “everything they can” to block the next IMF review and tranche for Sri Lanka if the Government does not actively engage with them.

“The private creditors believe it is the only way to get the Sri Lankan authorities to talk to them,”

Sources said there is dissatisfaction at Sri Lanka’s approach towards private creditors, and that Sri Lanka’s credibility with international capital markets will “disintegrate”.

One source noted that Sri Lanka has debt obligations that are under contract and are in default and so litigation cannot be ruled out

Nevertheless Sri Lanka has entered into an agreement in principle (AIP) with both the Official Creditors Committee (OCC) and the Export-Import Bank of China (EXIM Bank) for debt restructuring., Weerasinghe said.

The CB Governor also noted that negotiations with other external and commercial creditors are continuing expressing expectations that agreements will be reached with them soon.

However, it is still to reach consensus on the debt restructuring with sovereign bond holders, who had lent over US $25 billion before the Sri Lanka declared debt repayment stand still or preemptive default in April 2022.

The government will conclude the MOUs with them and striking a deal on plans of the issuance of new bonds with longer maturity by cancelling previous ones and differ interest rates, he disclosed.

The private creditor noted that there have been “too polite” in the process to give Sri Lanka plenty of space for good faith engagement but if there is no such engagement then other alternatives will need to be looked at.

“Everybody started the process hopeful that the new President (Ranil Wickremesinghe) could do things better than the previous regime. There was so much hope but now it is turning into so much disappointment,” sources said.

The private creditors fear that Sri Lanka is moving at a very slow pace in dealing with private creditors owing to domestic politics and the upcoming elections.

State Minister of Finance Shehan Semasinghe said that Sri Lanka wants to finalise the debt resolution as early as possible which will be beneficial to all creditors, including the bond holders and commercial creditors.