RW Govt. gears up to finalise IMF deal
(The Morning 12-03-2023)
- China’s latest assurance on SL debt restructuring brings IMF deal closer
- Govt.-India in agreement to extend $ 1 b credit line by a few months
As Sri Lanka nears the one-year mark of last year’s Aragalaya people’s power protest campaign, the country’s economic revival seems to be finally on track with the appreciation of the Sri Lankan Rupee and economic activities showing positive signs following news of the proposed International Monetary Fund (IMF) deal likely to be finalised this month.
However, the public’s agitation over the ongoing hardships seem far from over, with Opposition parties, civil society, trade unions, and university students taking to the streets over a plethora of demands. It would therefore be correct to say that the challenges faced by the Ranil Wickremesinghe Government are far from over.
Nevertheless, there was some respite for the Government with the receipt of the latest letter by the China Export-Import Bank on Monday (6), expressing commitment to Sri Lanka’s debt restructuring programme. The letter by the Export-Import Bank of China was signed by the Bank’s Vice President, Zhang Wencai.
“We hereby express our firm support to Sri Lanka through a debt treatment. This would be in line with the goal/objective of restoring public debt sustainability consistent with the envisaged IMF-supported programme and delivered through financial operations negotiated between our two sides. In view of the time needed for Sri Lanka to complete the debt treatment negotiation, in order to end your default status as soon as possible, and pave the way for the country’s economic recovery and debt sustainability restoring, the bank is going to provide an extension on the debt service due in 2022 and 2023 as an immediate contingency measure based on your request, which means you will not have to repay the principal and interest due of the bank’s loans during the above-mentioned period, so as to help relieve your short-term debt repayment pressure.
“Meanwhile, we would like to expedite the negotiation process with your side regarding medium- and long-term debt treatment in this window period, with a view to finalising the specifics of a debt treatment in the coming months, based on the principle of active communication, friendly discussion, mutually-beneficial, and win-win cooperation. We will make our best efforts to contribute to the debt sustainability of Sri Lanka,” the letter has stated.
The letter has further stated: “The bank will support Sri Lanka in your application for the IMF Extended Fund Facility (EFF) to help relieve the liquidity strain. In the meantime, adequate contributions from all the creditors would be a critical condition for a speedy solution as desired by all the parties. We will continuously call on commercial creditors (including the international sovereign bondholders) to provide debt treatment in an equally comparable manner, and encourage multilateral creditors to do their utmost to make corresponding contributions, to help you better respond to the crisis and emerge from it.”
Following the latest assurance received by the Chinese, President Wickremesinghe informed Parliament that Sri Lanka was expecting IMF Board approval by the end of the month after its largest bilateral creditor gave written support for debt restructuring via the Export-Import Bank of China on Monday (6). He said the Government had received the letter of assurance from the Chinese Exim Bank the previous night and the letter of intent signed by the Central Bank Governor and the President had been sent to the IMF the same night.
Meanwhile, US Treasury Secretary Janet L. Yellen on Monday spoke with President Wickremesinghe and expressed support for Sri Lanka’s steps towards an IMF-supported programme to advance economic reform and achieve a strong and durable recovery.
According to the US State Department of Treasury, the Secretary welcomed Sri Lanka’s commitments to transparency and comparable treatment for all bilateral official and private creditors.
IMF Chief Kristalina Georgieva said on Twitter: “I welcome the progress made by Sri Lankan authorities in taking decisive policy actions and obtaining financing assurances from all their major creditors, incl. China, India and the Paris Club.” She added that she looked forward to presenting the IMF-supported programme to the Executive Board on 20 March.
“Sri Lanka has now received financing assurances from all major bilateral creditors. This paves the way for consideration by the IMF’s Board on 20 March the approval of the Staff-Level Agreement reached on 1 September 2022 for financing under an Extended Fund Facility. Approval by the board would also catalyse financing from other creditors, including the World Bank and the Asian Development Bank. The arrangement will support the authorities’ programme of ambitious reforms that they have already embarked upon, which will help Sri Lanka emerge from its current crisis and set it on a trajectory of strong and inclusive growth,” the IMF stated on Tuesday (7).
Sri Lanka is making good progress towards unlocking the IMF bailout package but its Restricted Default (RD) status will only come off after the debt restructuring process reaches completion, rating agency Fitch had stated on Friday (10). “Sri Lanka’s post-default ratings would depend upon our assessment of its credit profile. If the key parameters for returning to debt sustainability under the IMF programme allow for a moderate and extended debt reduction process, this could facilitate debt restructuring talks but may weigh on the sovereign’s post-default credit rating,” Fitch said in a statement.
Meanwhile, Reuters last week reported that Sri Lanka was negotiating with India to extend a $ 1 billion credit line by a few months. The news report, quoting sources, has stated that the credit line is due to expire on 17 March, with Sri Lanka having used only about two-thirds of it, mainly for medicines and food.
A source at the Sri Lankan Finance Ministry has also been quoted as saying that the Government wanted to extend the credit line by 6-12 months because there was about $ 300 million of it left unused. By Thursday (9), an agreement had been reached on the extension.