IMF bailout at least 3-4 months away as assurances from bilateral creditors essential

Any fund disbursements from the International Monetary Fund (IMF) to crisis-hit Sri Lanka could be at least 3-4 months away from now as financing assurances from the country’s bilateral creditors remain a key sticking point for the IMF executive board to green light its bail-out programme, a presentation made to creditors by the Sri Lankan officials on last Friday showed. 

Sri Lankan officials on Friday met its creditors virtually to update them of the breadth and depth of the multifaceted crisis faced by Sri Lanka, the reform path since undertaken towards the staff-level agreement with the IMF and particularly the need to restore debt sustainability as an important precondition to unlock any fund flows back to the country. 

Sri Lankan people are undergoing an endless misery everyday as they are squeezed to the bone amid soaring prices of everyday goods and services as both monetary and fiscal policies were tightened after the rupee collapsed by 80 percent.  

Representing the Sri Lankan side the Governor of the Central Bank and the Secretary to the Ministry of Finance who together addressed the creditors expressed hopes to obtain financing assurance from both the public and private creditors by mid November before the IMF Board is expected to approve the programme in mid-December-January 2023. 

While agreements are expected to be reached in principle with all creditors within this time frame, the negotiations would continue through the second quarter of next year before the renegotiated debt agreements are legally implemented.

The financing assurances could take two forms based on the profile of the creditor groups – official and private. 
The financing assurances from official creditors would mean commitment to grant Sri Lanka debt treatment compatible with the macro-economic framework and debt sustainability constraints in the IMF programme.

To expedite this process, the officials promote the formation of an ad-hoc bilateral creditor coordination platform which allows, “the official bilateral creditors to give their financing assurances to the IMF collectively after having debated among themselves, with the IMF and the Government of Sri Lanka on the general contours of the debt treatment required to support the restoration of debt sustainability,” the presentation said.

Sri Lanka’s bilateral creditors include the Paris Club members and non-Paris Club members led by China and India accounting for 52.0 percent and 12.0 percent respectively out of a total of US$ 13.8 billion worth of bilateral debt which includes government guaranteed State-owned enterprise debt.
President Ranil Wicremesinghe on Thursday met the ambassadors representing Sri Lanka’s bilateral creditors seeking expedited financing assurances. 

According to the data presented on the outstanding public debt, Sri Lanka had US$ 46.6 billion worth of foreign currency debt, US$ 34.0 billion of US$ equivalence of local currency debt, making up for US$ 80.5 billion of total public debt by the June end, working out to 122 percent of Gross Domestic Product (GDP).  
The private foreign currency debt amounted to US$ 18.8 billion, out of which bonded ones including the international sovereign bonds (ISBs) and Sri Lanka Development Bonds made up of US$ 14.5 billion by the end of June. 

Meanwhile, the financing assurances from private creditors would mean Sri Lanka making a ‘good faith’ effort to reach collaborative agreement with them which includes engaging in early dialogue and sharing relevant information on a timely basis. 

These private bondholders of Sri Lanka’s ISBs have organised themselves into two main creditor committees—one consisting of 100 members of international investors and another consisting of eight local private banks holding slightly in excess of a billion dollars worth of ISBs. 
The former group represents more than 55 percent of ISBs non-domestic holdings, led by a steering committee of 10 members advised by Rothschild and White & Case while the latter is advised by Baker & Mackenzie.

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