Sri Lanka will present its programme agreed with the International Monetary Fund (IMF) to its official and private creditors tomorrow for the first time, seeking debt relief, as the US $ 81 billion crisis-hit economy seeks to turnaround its fortunes.
The country entered into a staff-level agreement with the IMF on September 1 for a four-year, US $ 2.9 billion Extended Fund Facility (EFF), after it froze all its external debt repayments on April 12 and defaulted on its debt for the first time in its history in the following month.
The disbursement of the IMF funds however is contingent upon Sri Lanka gaining what the IMF calls ‘debt assurances’ from its creditors.
Sri Lanka is looking to restructure about US $ 29 billion, out of which International Sovereign Bonds (ISBs) account for US $ 19 billion.
Addressing a conference in Colombo, organised by the Post Graduate Institute of Management Alumni (PIMA), Central Bank Governor Dr. Nandalal Weerasinghe on Wednesday confirmed that Sri Lanka would be formally commencing the debt restructuring process tomorrow (23).
“We did some background work with the advisors appointed to help us—Lazard and Clifford Chance. On Friday, we are making the announcement and making a public presentation inviting all the external creditors and we present our programme. The IMF will also be helping us,” he said.
He noted that for the IMF to present the agreement entered at staff-level to its executive board to obtain approval to start disbursing the money, Sri Lanka has to secure collective assurance from the creditors that they are willing to support Sri Lanka in its debt restructuring process.
“We are expecting to treat all our creditors in a fair and equal manner and we will be asking for similar relief from all creditors,” Dr. Weerasinghe said.
However, commenting on how long the process will take, he said that “everything is in their hands”, referring to both official and private creditors of Sri Lanka. “The shorter the time they take to give us the assurance, sooner we can expect the IMF to start disbursing money.”
Dr. Weerasinghe said if Sri Lanka were able to reach a deal with its creditors, along with the IMF, a lot of other investors and multilateral partners would step in and enhance their support to Sri Lanka. “That is crucial to stabilise the economy,” he said.
While expressing his confidence in reaching a deal with the creditors and stabilising the economy, Dr. Weerasinghe stressed that as of now, Sri Lanka is not at all “out of woods”, as the country would continue to face hardships in the interim period until a deal with the creditors is struck.
He said even after that Sri Lanka cannot go back to its former ways, where the country ran massive budget deficits, current account deficits and trade deficits, as both successive Sri Lankan governments and the country’s people lived beyond their means.
“Going forward, we have to change our mindset. We should correct ourselves. We should be able to earn sufficient foreign exchange without relying on credit,” he said.
“Hopefully creditors will give us a chance this time but there won’t be a second chance. If we don’t address our internal economic imbalances—fiscal, BoP, current account, import-export—then we will have to go back to them again. Countries like Argentina are repeatedly going back to debt restructuring. I don’t think we want to go there,” he added.