Sri Lanka concludes negotiation with key creditors, can reach IMF in January: Cabinet Co-Spokesman

By Charumini de Silva

Cabinet Co-Spokesman and Minister Bandula Gunawardena

Sri Lanka has successfully concluded its debt restructuring negotiations with China, India, and Japan, Cabinet Co-Spokesman and Minister Bandula Gunawardane revealed yesterday.

“As I know, the Central Bank Governor has informed President that the negotiations with China, India, and Japan over debt restructuring were successfully concluded. Therefore I believe we can go to IMF by January. I saw the announcement comprised statement,” he said in response to queries posed at the post-Cabinet meeting media briefing held yesterday.

On 1 September, International Monetary Fund reached a staff-level agreement with Sri Lankan authorities, in a first step before extending a $ 2.9 billion bailout package that the fund has made contingent on assurances from the country’s creditors. 

Gunawardane said the top officials of the Finance Ministry and the Central Bank are the authorised people to comment on the matter, requesting journalists to inquire from the banking regulator. 

In April, Sri Lanka declared bankrupt, announcing a temporary suspension of repayment of all external debt, as the country can no longer honour its commitment owing to its poorer financial position caused by external and internal shocks. 

The priority for Sri Lanka was to obtain financing assurance from the bilateral creditors. Thereafter, an evaluation by the IMF Board of Directors is required to start disbursing money may be from January. The restructuring, finalising it and debt exchange will take place after the IMF disburses the money. 

The objectives of Sri Lanka’s new IMF-supported program are to restore macroeconomic stability and debt sustainability while safeguarding financial stability, protecting the vulnerable, and stepping up structural reforms to address corruption vulnerabilities and unlock Sri Lanka’s growth potential.

Debt relief from Sri Lanka’s creditors and additional financing from multilateral partners will be required to help ensure debt sustainability and close financing gaps. 

Financing assurances to restore debt sustainability from Sri Lanka’s official creditors and making a good faith effort to reach a collaborative agreement with private creditors are crucial before the IMF can provide financial support to Sri Lanka.

In September, the Paris Club expressed its willingness to start the debt treatment process of Sri Lanka following the conclusion of the SLA with the IMF.

Sri Lanka’s foreign currency bilateral debt as of the end of 2021 was $ 9.6 billion or 11% of GDP as against $ 20 billion held by private creditors. Guaranteed SOE bilateral debt was $ 300 million and those held by the Central Bank of Sri Lanka were $ 1.8 billion. Of the Paris Club members, the giant share is held by Japan (32%) followed by Korea 3%, Germany and France 2% each, USA and Spain 1% each.

Last week, IMF requested China to play its part and the biggest bilateral lender indicated willingness.

In a statement following the fruitful meeting with China’s Premier Li Keqiang and following the Seventh “1+6” Roundtable in China, IMF Managing Director Kristalina Georgieva said several issues concerning the need to reduce the risk of debt crises were discussed.

“We need to build on the momentum of the agreement on Chad’s debt treatment and accelerate and finalise the debt treatments for Zambia and Sri Lanka, which would allow for disbursements from the IMF and multilateral development banks,” she said.

With $ 7.3 billion, China is Sri Lanka’s biggest bilateral creditor accounting for 52% of the total worth $ 14 billion.