Second round of IMF talks on debt sustainability today

Imesh Ranasinghe 

Sri Lanka will commence the second round of talks with the International Monetary Fund (IMF) today (9) in seeking financial assistance for the 17th time in its history to bring the country out of its worst economic crisis since Independence.

The IMF said the meeting which will be held with the Sri Lankan authorities will be a virtual one and will continue till 23 May.

“We remain committed to assisting Sri Lanka, in line with the IMF’s policies. Because Sri Lanka’s debt is assessed as unsustainable, approval of IMF financing, including through a Rapid Financing Instrument (RFI), would require adequate assurances that debt sustainability will be restored,” the IMF said in a statement.

On 12 April, Sri Lanka suspended the repayment of $ 51 billion in external debt ahead of a coupon payment of $ 78 million which was due on 18 April.

The first round of talks between IMF and Sri Lanka was held during 18-22 April, where they “had fruitful technical discussions”.

The Finance Ministry said that the first round of talks was mainly focused on the present critical situation of the Sri Lankan economy, and policies and measures to be implemented in the immediate, short, and medium-term.

According to a statement by the Finance Ministry, “the key areas discussed included addressing the immediate need of restoring supply chains of essential items, including fuel, LP gas, and pharmaceuticals, and securing bridge financing in the interim period until IMF financing with an economic programme is finalised”.

Also, talks were held on implementing short to medium-term policies to ensure macroeconomic stability and facilitate greener, more inclusive, sustainable, and stable growth in the country.

Sri Lanka is seeking an Extended Fund Facility (EFF) from the IMF to overcome the economic crisis.

“A formal request was also made for a Rapid Financing Instrument (RFI) for consideration of the IMF to obtain immediate financing into the country, which will be a bridge to the EFF,” the Ministry statement said.

Similarly, in 2016, the IMF approved an EFF of $ 1.5 billion for a period of three years to support the former Government’s economic reforms.

However, the country could only secure $ 1.31 billion after its sixth review in November 2019 under the programme, as the current administration decided to not continue with the programme when they took office later the same month.

Sri Lanka has decided to carry the debt restructuring process parallel to the IMF talk, last week Finance Minister Ali Sabry said in Parliament that the financial and legal advisors for the debt restructuring process will be appointed in two weeks.

Sri Lanka has sought IMF assistance 16 times since 1965, of which 10 have been standby arrangements, one structural adjustment facility commitment, and the rest, EFFs.

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