President puts onus of EDR final deal on IMF

Wednesday, 3 July 2024 00:34 - - {{hitsCtrl.values.hits}}

President Ranil Wickremesinghe yesterday in Parliament implied that it was the International Monetary Fund (IMF) which has the final say on the basis of the External Debt Restructuring (EDR).

“Neither the creditor nor the borrower has the authority to make the final decision on the extent of debt restructuring. The International Monetary Fund (IMF) makes that decision.

They determine what kind of restructuring plan is necessary to make a country’s debt sustainable, based on an independent assessment of the economic strength of each country,” claimed Wickremesinghe during his special address in Parliament.

He claimed that official bilateral creditors never reduce the principal amount of a loan. “What we can obtain are concessions such as extended loan repayment periods, grace periods, and reduced interest rates,” he said. “Not understanding this reality, some blame the Sri Lankan Government for not requesting a basic debt write-off. Others claim that if they come to power, they will negotiate with creditor countries to cut 50% of the initial loan amount. We must recognise that such actions require mutual agreement. Creditors will not simply comply with our demands. These statements reveal a lack of understanding of international economic systems,” explained the President to MPs.

He recalled that the IMF warned Sri Lanka long before the 2022 crisis that the country’s debt was unsustainable.

“Furthermore, the methodology the IMF follows varies by country. There is one approach for low-income countries and another for middle-income countries,” said the President and cited an example. “Sri Lanka, being a middle-income country, was among the first to implement debt restructuring using the new debt sustainability analysis framework tailored for middle-income countries. According to the plan set for Sri Lanka, public debt must be reduced to below 95% of the Gross Domestic Product (GDP) by 2032. In contrast, the plan presented for Ghana, a low-income country, required them to reduce the present value of their public debt to below 55% of GDP by 2028,” Wickremesinghe said.

“Low-income countries follow a common action framework, which allows them to convene all their creditors on one platform to make decisions. However, this does not apply to us since we are a middle-income country. Therefore, debt restructuring in Sri Lanka is a more complex process,” he added.

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