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“Require adequate assurances” on Sri Lanka’s debt sustainability restoration: IMF

The global lender’s comments come as Sri Lanka’s Prime Minister Ranil Wickremesinghe, who is also the finance minister, on Thursday said he would quickly prepare an economic reform programme and seek approval from the IMF.

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People wait in a queue to buy petrol at a fuel station, amid the country's economic crisis in Colombo, Sri Lanka, May 16, 2022. (Photo source: Reuters)

Since Sri Lanka’s public debt is assessed as “unsustainable,” the IMF has said that it requires “sufficient assurance” from the country that it will restore debt sustainability during the debt restructuring process, a media report on Friday quoted the global crisis lender as saying.

“The (IMF) team welcomes the appointment of financial and legal advisors to engage in a collaborative dialogue with their creditors. It is an important step towards restoring public debt sustainability,” the EconomyNext website cited the International Monetary Fund as saying after the end of technical level negotiations between the crisis-hit country’s officials and the IMF team.“Since Sri Lanka’s public debt is assessed as unsustainable, approval by the Executive Board of an IMF-supported programme for the country would require adequate assurances that debt sustainability will be restored,” the IMF said.

The global lender’s comments come as Sri Lanka’s Prime Minister Ranil Wickremesinghe, who is also the finance minister, on Thursday said he would quickly prepare an economic reform programme and seek approval from the IMF. Wickremesinghe said: “I have placed my special attention on this because of the present global situation, the war in Ukraine and global inflation. From what we can see, a number of countries may have to face economic problems like ours.” On Thursday, Wickremesinghe met the chairmen and top management of all state and private banks in the country and inquired from them issues such as the dollar deficit and credit expansion as well as the amount of savings, media reports said. Sri Lanka has been going through the worst economic crisis since its independence from Britain in 1945, triggering a political crisis as well.

The nearly bankrupt country, with an acute foreign currency crisis that resulted in foreign debt default, announced last month that it is suspending nearly USD 7 billion foreign debt repayment due for this year out of about USD 25 billion due through 2026. Sri Lanka’s total foreign debt stands at USD 51 billion. The IMF on Thursday also said that the inflation had accelerated “driven by many factors, including the shortages of goods, fuel price increases, and currency depreciation”.

“In this context, we are deeply concerned about the impact of the ongoing crisis on the people, particularly the poor and vulnerable groups,” the statement from the global lender said. “The IMF team held technical discussions on a comprehensive reform package to restore macroeconomic stability and debt sustainability. The team made good progress in assessing the economic situation and in identifying policy priorities to be taken going forward,” it added.

The IMF comments also came as details of how Sri Lanka’s Monetary Board at the central bank and the Finance Ministry last year failed to address the debt sustainability issue despite the global lender in April 2020 advising the island nation to go for debt restructuring. It added that the discussions on Thursday “focused on restoring fiscal sustainability while protecting the vulnerable and poor; ensuring the credibility of the monetary policy and exchange rate regimes; preserving financial sector stability, and structural reforms to enhance growth and strengthen governance.” We expect that these discussions will help the authorities formulate their reform programme,” the IMF said.

Former finance minister Ali Sabry has said that badly timed tax cuts led to a reduction in the government revenue, reducing the island nation’s ability to borrow. Also releasing existing reserves to maintain the US dollar at a fixed rate against the local currency triggered the foreign currency crisis in the country already hit by the COVID-19 pandemic that severely reduced tourism revenue, one of the country’s economic lifelines.

The crisis has prompted an acute shortage of essential items like food, medicine, cooking gas and other fuel, toilet paper and even matches, with Sri Lankans for months being forced to wait in lines lasting hours outside stores to buy fuel and cooking gas. Protesters have occupied the entrance to President Gotabaya Rajapaksa’s office for nearly 50 days now, demanding his resignation.

The president’s brother and former prime minister Mahinda Rajapaksa resigned earlier this month following countrywide violence when his supporters attacked peaceful protesters.The new prime minister Wickremesinghe has promised to propose constitutional changes to curtail presidential powers, strengthen Parliament and resolve Sri Lanka’s economic difficulties.

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