Sri Lanka is set to secure financing support from the IMF after the fund’s Executive Board fixed a date of 20 March to review the US$2.9 billion staff-level agreement that the country signed with the IMF in September 2022.
IMF funding should improve Sri Lanka’s external liquidity, but the timing of any debt restructuring agreement with official and private creditors remains uncertain.
The announcement of a date for the Executive Board review was an indication that the IMF regards the financing assurances it has received from key official creditors as sufficiently credible to move forward, finance ministry sources revealed.
Sri Lanka’s president Ranil Wickremasinghe on 7 March indicated that China had provided its support, following earlier assurances from India and Paris Club official creditors.
The president also indicated that Sri Lanka had completed all prior actions required under the IMF programme, although the IMF Board will make its own assessment on this in deciding whether to approve the package.
Board approval of the programme would release IMF funding and should unlock additional financing from multilateral creditors.
This would bolster official foreign-exchange reserves, which have already risen 30% from their trough in October 2022. Nonetheless, reserves remain very low, at US$2.2 billion in February, equivalent to around one month of imports.
Two groups of private creditors are now ready to hold international sovereign bond (ISB) debt restructuring negotiations with Sri Lankan authorities, as the Finance Ministry and the Central Bank have almost completed their debt treatment discussions with bilateral creditors.
Although the total government external debt amounts to US$ 36.73 billion as at end of 2022, only bilateral debt is considered at present for the debt restructuring process to obtain the $2.9 billion International Monetary Fund (IMF) Extended Fund Facility.
The IMF called for ‘timely and orderly processes’ under a common framework with regards to Sri Lanka’s debt resolution. The island nation faced a severe economic crisis which resulted in high debt.
Sri Lanka has already fulfilled filled around 15 commitments made to IMF and put forward a debt treatment from work with proposal of immediately restructuring bilateral debt of US, India ,China ,Japan,and Paris club member and non member countries amounting to US$10.81 billion to gain $2.9 billion IMF bail out loan soon.
A group of overseas private creditors announced recently that it is ready to hold complex debt restructuring talks with Sri Lanka consistent with the IMF programme, Finance ministry sources said.
The total ISB debt stock with arrears as at end of 2022 was $14.286 billion with different maturity periods and varied interest rates, the Ministry’s latest data shows.
It was categorized as commercial debt and most of ISB’s maturity periods will fall on 2024, 2025, 2026, 2027, 2028 and 2029. Each and every ISB has different dates of maturity and varied interest rates.
The only issue at hand is the repayment of $1.25 billion ISB on April 18 this year. The government is servicing other multilateral loans including from the World Bank and ADB amounting to $9.499 billion.
Sri Lanka’s private bondholders have told the IMF that they are prepared to negotiate with Sri Lankan authorities in debt restructuring talks consistent with the parameters of the global lender’s programme.