• Says MoUs and loan agreements are being drafted bilaterally 
• Highlights significance of reaching an agreement, necessity of bond exchange for commercial creditors

Central Bank Governor  Dr. Nandalal Weerasinghe  – Pic by Lasantha Kumara

By Charumini de Silva

Central Bank Governor Dr. Nandalal Weerasinghe this week expressed optimism that Sri Lanka is on track to finalise the Memorandum of Understanding (MoU) signing with official creditors before June, aligning with the timeline set for the second review by the International Monetary Fund (IMF).“The debt negotiations are going well. Official creditors have agreed in principle, and we are now drafting the MoUs and loan agreements on a bilateral basis,” Weerasinghe told journalists on Tuesday.

Sri Lanka will need to reach agreements with its official creditors – China, Japan and India, as well as a resolution with external private creditors to restructure its foreign debt before finalising the review.

He conveyed confidence in securing approval for external debt restructuring before June.

In terms of the commercial creditors, Dr. Weerasinghe noted ongoing progress with new proposals and discussions through advisors in consultation with the IMF. 

An IMF delegation is scheduled to visit Sri Lanka in March and the second review could be finalised about two months afterwards.

“The anticipated approval of the third tranche of the $ 2.9 billion Extended Fund Facility (EFF) from the IMF will be seen as a pivotal step in signalling how Sri Lanka intends to restructure its external debt. This may involve considerations such as reduced interest rates, a potential haircut or an extended timeframe,” he pointed out.

The IMF EFF program envisages Sri Lanka receiving $ 660 million per annum between 2023 and 2026 and $ 329 million in 2027 subject to half yearly review.

Drawing parallels to domestic debt restructuring with the Employees’ Provident Fund (EPF), 

Dr. Weerasinghe explained the necessity of a bond exchange between commercial creditors. However, he acknowledged the complexity of the international scenario compared to the domestic situation.

Asserting the significance of reaching an agreement, the Governor stated that it marks a crucial step, paving the way for the repayment of obligations to agreed-upon terms. 

“The successful execution of the debt restructuring plan by June is expected to bring much-needed stability to Sri Lanka’s financial landscape to regain its confidence in the international arena,” he said.

The total amount sent so far to Sri Lanka now stands at about $ 670 million, according to the IMF.

An IMF delegation will travel to Sri Lanka in March and the second review could be finalised in about two months afterwards, senior mission chief for Sri Lanka Peter Breuer, told an online press briefing in Washington.

“We are projecting that next year there will be positive growth. So, I think there are signs that all these reforms are paying off but clearly the economy is not yet out of the woods, a lot more reforms need to happen.”

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