Sri Lanka seeks IMF, World Bank aid to avert debt crisis
Sri Lanka is seeking a loan package from the International Monetary Fund ( IMF) after much delay while also canvassing for World Bank assistance at the 2022 Spring Meetings of the World Bank Group and the IMF and related ancillary events taking place from April 18- 24 in Washington, Finance Ministry sources said.
The government hopes the IMF loan programme will help the country to tackle increasing debt vulnerabilities, strengthen foreign reserves and avert balance of payment issues coupled with structural adjustment assistance, a senior official closely connected to foreign financing said.
The World Bank normally extends support to increase exports, improve economic competitiveness and assist economic growth; he revealed adding that Sri Lankan team headed by Finance Minister Basil Rajapaksa will get an opportunity to canvass for World Bank aid during ancillary events.
The team will have to negotiate with the IMF for a loan package of at least US$4 billion with a maturity period of 7- 8 years at an interest rate of 3.5 per cent to overcome the present forex crisis, he added. .
The IMF programme will include a sovereign debt restructuring framework that would assist in achieving an early restructuring of unsustainable debt, balance of payments viability in a manner
that minimises the resort to measures that are destructive to national prosperity.
The IMF will initiate discussions with Sri Lankan authorities on a possible loan programme in coming days, IMF spokesperson Gerry Rice said on Thursday responding to a question by a journalist at a Washington media briefing.
“The Sri Lankan authorities have expressed interest in an IMF-supported financial programme,” Mr. Rice said. “We plan to initiate those programme discussions with the Sri Lankan authorities ... pretty much in the coming days.”
Sri Lanka has already laid the basic infrastructure for external debt restructuring process by initiating action to hire a global law firm to provide technical assistance on debt restructuring ahead of talks with the IMF.
Restructuring commercial debt has to be dealt with by international law and it is an e x p e n s ive and t i meconsuming process to reach a consensus with all creditors, a high-level official said.
There are four parameters generally considered in debt restructuring including reducing of debt stock or principal amount known as haircuts, adjusting the interest rates to be paid or coupon rates and extending the repayment or maturity period, he explained.
Sri Lanka will be seeking IMF assistance for debt restructuring as it is the only credible organisation to conduct an independent sustainability study of the country before deciding the adjustment or deciding which parameters of restructuring are to be used.
The country has to settle around $ 7.5 billion in domestic and foreign debt payments this year, and about $ 4 billion of that includes payments on foreign debts includes the $ 500 million international sovereign bond already paid in January and the $ 1 billion similar bond maturing in July.