Sri Lanka nears of emerging from a ‘restrictive default’ status: Economic experts
By: Staff Writer
July 18, Colombo (LNW): Sri Lanka is on the brink of emerging from a ‘restrictive default’ status, a label that has deterred potential investors, several eminent economic experts claimed.
While Sri Lanka is poised to exit its restrictive default status, the journey ahead requires maintaining macroeconomic stability, implementing structural reforms, securing investments, and achieving significant fiscal health improvements to ensure sustainable economic growth and stability
The nation has undertaken significant and difficult measures to restructure its debt and is now awaiting the final nod from the International Monetary Fund (IMF) to validate the negotiated terms with creditors.
This approval is crucial as it will indicate a change in the country’s economic status, an outcome eagerly awaited by the nation’s stakeholders.because the authorities have failed to fulfill the rheir commitments properly and change of governments they said adding that this time no turning back for the island nation.
Maninda Wickramasinghe, MD of Fitch Ratings Lanka, noted the substantial recovery progress Sri Lanka has made, a sentiment shared by international agencies.
He pointed out that once the restructuring of bonds and bilateral agreements is finalized, there should be no reason for rating agencies to keep the country at restricted default.
Wickramasinghe emphasized that his views were personal and did not represent Fitch Ratings Lanka’s official stance. He also mentioned that Sri Lanka should initiate a review process, which should be brief.
Wickramasinghe praised Sri Lanka’s resilience in restructuring its debt but stressed the importance of learning from past mistakes to avoid future economic pitfalls. Addressing the timeline for status change, he highlighted the complexity, noting this was the first time Sri Lanka approached the IMF while in default.
He remarked on the frequency of IMF engagements, indicating systemic issues that need addressing to prevent recurrence.
World Bank Lead Economist Gregory Smith shared similar views, stating that while exiting restrictive default is feasible, the real challenge will be achieving a rating upgrade afterward.
Smith pointed out the monumental task of reaching a B- rating due to high debt service to revenue ratios. He emphasized the need for Sri Lanka to regain market access by 2027 to repay the IMF and highlighted the necessity for substantial new investments.
Smith also underscored the difficulty countries face in returning to their pre-crisis status, noting the extensive work required and the importance of avoiding policy mistakes to foster economic growth.
Former Central Bank Governor Dr. Indrajith Coomaraswamy echoed these sentiments, emphasizing the need for macroeconomic stability, structural reforms, and leveraging opportunities from neighboring India to achieve a growth rate above 3 percent.
Coomaraswamy stressed that achieving a primary surplus target of 2.3 percent by 2025 is crucial to avoiding another debt restructuring.
He advocated for improving tax revenue through better administration and eliminating tax concessions, aiming to raise the tax revenue to GDP ratio beyond 15 percent. This financial stability is essential to support the country’s growth initiatives and economic strategy.
