The figure amounts to 2,900 million dollars, to be disbursed in 48 months. The next steps will depend on Sri Lanka’s ability to meet the lender’s demands for fighting corruption and financial transparency. Japan has invited China and India to meet to discuss Sri Lanka’s debt restructuring.
Colombo () – Sri Lanka yesterday reached an agreement with the International Monetary Fund (IMF) to grant a loan of 2.9 billion dollars, to be disbursed in 48 months, a fundamental step for the bankrupt country that will allow it to unlock new financing and debt restructuring. The loan is granted under the IMF’s Extended Fund Facility (EFF), which helps countries deal with balance of payments or liquidity problems.
According to a statement issued by the IMF, the EFF will help Sri Lanka restore macroeconomic stability and debt sustainability once the program is approved by the IMF’s management and board of directors.
At a meeting in Colombo, Fund officials noted the importance of “proceeding quickly with debt restructuring to get final loan approval.” Peter Breuer, head of the IMF mission, stated that for the time being “it would be difficult to establish” a schedule for the disbursement of the loan, but reiterated the need for urgent aid to avoid a humanitarian crisis.
According to another official, Masahiro Nozak, “the impact fell disproportionately on the poorest and most vulnerable.” The funds, he added, “are aimed at stabilizing the economy, protecting the livelihoods of the Sri Lankan people and paving the way for economic recovery by promoting sustainable and inclusive growth.” Vulnerabilities have increased due to a lack of reserves and an unsustainable structure of public debt.”
The program includes reforms aimed at reducing corruption and insisting on financial transparency.
Sources from the Ministry of Finance told that Sri Lanka is working with financial and legal advisers on a debt restructuring strategy and plans to make a presentation to creditors in the coming weeks. The aim of the meetings is to “provide updated information on macroeconomic developments”, the fundamental aspects of the agreed reform package and future steps.
In recent months, the island country has had to deal with its worst post-independence economic crisis, as well as political upheavals that led to the formation of a new government. Diminishing foreign exchange reserves, shortages of basic necessities such as food, fuel and medicine, and the continent’s fastest-growing inflation have devastated the economy.
According to high-level government sources, Sri Lanka is also negotiating with India, Japan and China for bridge financing, because the country needs an agreement among its “official creditors” before turning to “credit bondholders”.
Some economic analysts have explained that it may take a while for the aid to arrive, depending on Sri Lanka’s ability to offer guarantees that it can meet the IMF’s tough austerity demands and strike deals with its creditors.
However, opposition MPs and some academics argue that “the IMF deal is not a solution for Sri Lanka’s debts and, on the contrary, will lead to the privatization of many factories under the pretext of restructuring them.”
Meanwhile, Japan’s Finance Minister Shunichi Suzuki today called on all creditor countries to discuss Sri Lanka’s debt restructuring. The Japanese politician stated that “it is important that all creditor countries, including China and India, come together” to achieve that goal.
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