Sri Lanka and IMF reach preliminary agreement on an emergency loan
Sri Lanka and the International Monetary Fund (IMF) have reached a preliminary agreement on an emergency loan and a formal announcement will be made today after the successful conclusion of a week-long discussions between IMF and local official teams, official sources said.
The island nation, struggling with its worst economic crisis in more than seven decades, had sought up to $3 billion from the IMF.
Staff-level agreements are typically subject to the approval of the IMF management and its executive board, after which the recipient nations get access to funds.
A visiting IMF team held talks with President Ranil Wickreamasinghe, opposition leader Sajith Premadasa Sri Lankan government officials, including the treasury secretary, late into the night on Tuesday to address concerns on the political front, the sources said. Most of the technical details had been agreed beforehand.
The International Monetary Board team arrived in the island on Wednesday 24 to finalize discussions and to reach Staff-Level Agreement which will lead to to gain IMF Board Approval and unlock loan package including additional much-needed multilateral financings ,official sources said.
Sri Lanka is to continue engagement with creditors in order to obtain financing assurances although debt restructuring plan, which is crucial to reaching the eagerly awaited agreement with the IMF, is yet to be finalized.
A staff-level agreement would be an important milestone towards the IMF Board approval for the EFF programme, which in turn would help unlock bridging finance to support the much-needed external financing for Sri Lanka,” the Finance Ministry said.
The ministry shared that the Sri Lankan authorities are working with debt restructuring advisor Lazard and Clifford Chance to reach a consensus on debt restructuring arrangements with the creditors.
“The advisors have already prepared the analytical framework for the debt operation, prior to formal engagements with Sri Lanka’s creditors,” the ministry said.
The statement highlighted that the government is committed to engaging its creditors in good faith, with a view to reaching a comprehensive debt restructuring programme that provides a fair and sustainable outcome for all stakeholders.
According to Central Bank Governor Dr. Nandalal Weerasinghe ,the International Monetary Fund’s disbursement of the Extended Fund Facility to Sri Lanka can be expected by the end of the year, subject to the success of debt restructuring with creditors and successful negotiations with the IMF.
“First part is to reach a staff-level agreement on the overall macro fiscal policy framework for the next 3-4 years and the medium-term framework, that we are coming closer to reaching an agreement on a macro fiscal framework,”he disclosed.
“The second part is for us to agree and negotiate with the debt targets for us to make our medium to long term debt sustainable. We are in the process of having this discussion. Only after that basically we can say where the debt targets we have to meet.”
He said that after ending discussions with the IMF and reach that agreemen,t then only they will approach the creditors,”.
Once we reach the staff-level agreement, then the timeline is set. Then we have to approach all our external creditors and start negotiating and discussing in good faith for us to obtain a relief on the debt service payments, he added.
“It is essential to get ‘financial assurance’ from Sri Lanka’s external creditors he said adding that CB thinks next about 3-4 months, hopefully if all goes well, if all external creditors are cooperating with the Sri Lankan government’s debt management strategy, then hoping that we would be able to get financial assurance somewhere is December.
This will be the requirement for IMF to allow the Central Bank to submit its paper to the executive board enabling them for disbursing the Extended Fund Facility of Around US $ 3 billion in tranches commencing from towards the end of this year, he claimed.