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UK works with Paris Club members to help SL on external debt crisis

The UK is working closely with fellow Paris Club members to discuss potential solutions to Sri Lanka’s external debt crisis, the UK Parliament was told this week.

Social unrest, political uncertainty and a complex web of creditors could scupper Sri Lanka’s push for a swift overhaul of its $12 billion overseas debt, analysts warn, saying the South Asian nation is fast running out of road.

 Sri Lanka’s investors are in wait-and-see mode until there is more clarity on what an IMF programme would look like, but time is running out.

“It  has a $2.5 billion gap to be filled for 2022 and 2023,” an economist said adding Sri Lanka needs at least $1 billion from the IMF. The country needs fresh money to spend. If not, it’s going to collapse” he said.

“The UK is also working closely with fellow Paris Club members to discuss potential solutions to Sri Lanka’s unsustainable debt levels in the event that an IMF program is agreed,” said Conservative MP for Chelmsford Vicky Ford who holds the Government post of Parliamentary Under-Secretary (Foreign, Commonwealth and Development Office).

She was responding to a question posed by Conservative MP for Hendon Dr. Matthew Offord who is also Chair of the All Party Parliamentary Group on Sri Lanka.

He asked the Secretary of State for Foreign, Commonwealth and Development Affairs what support her Department is providing to the Sri Lankan Government in response to the financial situation in that country.

In her response, MP Ford said the UK Government is closely monitoring the situation in Sri Lanka including food security and livelihoods.

“We encourage a peaceful, democratic, and inclusive approach to resolving the current political and economic challenges. In April, the World Bank (WB) agreed to provide $ 600 million in financial assistance, and we understand there are discussions to extend this support. The UK is a major donor to the WB and continues to engage with international financial institutions on Sri Lanka’s economic situation,” she added.

According to her, the UK has welcomed the start of in-depth discussions with the International Monetary Fund (IMF) on the reforms needed to bring the economy back to a sustainable path. These negotiations are likely to take up to 6 months.

“Sri Lanka has requested support from the IMF, however, at present no Sri Lanka proposal has been shared with members. When one is made available, we will scrutinise it carefully against the IMF criteria alongside other IMF members. 

“In the meantime, discussions are underway with several countries to obtain bridge financing in order to maintain flows of essential imported goods. The UK is also working closely with fellow Paris Club members to discuss potential solutions to Sri Lanka’s unsustainable debt levels in the event that an IMF programme is agreed,” MP Vicky added. 

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