IMF stresses the need of signing MOUs with official creditors on debt treatment

The government has reached important milestones in putting debt on the path towards sustainability while taking challenging policy actions to put the crisis behind them and its performance under the economic reform programme was satisfactory, Senior IMF Mission Chief for Sri Lanka Peter Breuer commented at a virtual press conference in Washington earlier this week.

Sri Lanka’s agreements-in-principle with the Official Creditors Committee and the Export-Import Bank of China on debt treatments are consistent with the programme targets.

It is now important for the Sri Lankan authorities and the official creditors to sign the respective Memoranda of Understanding for timely implementation of the agreements, he emphasised.

In addition reaching a resolution with external private creditors, should help restore Sri Lanka’s debt sustainability over the medium term, he pointed out adding that IMF staff will continue to assist the authorities with creditor coordination in line with the IMF’s policies.

The core part of the debt restructuring negotiations has already taken place. But it is not complete because these agreements in principle need to be converted into actual agreements or into memoranda of understanding, he revealed.

Sri Lanka has to reach these agreements with its external official and commercial creditors, before the second review of the US $ 3 billion Extended

Fund Facility of the International Monetary Fund by the first half next year.

An IMF staff team will visit Sri Lanka next year and expect that the second review could be concluded by the end of the first half of the year. Again, it depends on developments on the ground. But ‘we’ expect to travel to Sri Lanka sometime in March or April and then conclude the review, he disclosed.

IMF is projecting a positive economic growth of 1.8 per cent next year from the contraction of 3.8 per cent this year as there are signs that all the reforms are paying off and sustaining this reform momentum is key for the economy to safely emerge from the crisis, he pointed out.

Outlining the measures suggested by the IMF to tackle social unrest, IMF resident representative in Sri Lanka Sarwat Jahan noted that they have designed a social protection scheme where there is a minimal spending floor.

This year it was about Rs. 187 billion and in 2024, the budget has increased it to about Rs. 205 billion, and this amounts to around 2.6 - 2.7 per cent of GDP, it was noted.

Deputy Mission Chief for Sri Lanka Katsiaryna Svirydzenka emphasised that the bank recapitalisation is an important part of the economic reform programme to safeguard financial stability.

The IMF is to provide financing to the government so indirectly that money can be used to help recapitalise banks, she revealed.