Sri Lanka is in talks with the International Monetary Fund (IMF) to borrow at least $3 billion via the lender’s extended fund facility (EFF), official sources said.
The island state’s government expects another round of technical talks with the IMF in early June and hopes to reach to a staff-level agreement as soon as the end of this month, Prime Minister Ranil Wickremasinghe opined.
Sri Lanka has requested a rescue plan to overcome its worst economic crisis since independence in 1948. It defaulted on some overseas debt earlier this year and is struggling to pay for imports of basics such as fuel and medicine.
An EFF programme, which would be the 17th IMF plan for the nation, requires countries to make structural economic reforms “to correct deep-rooted weaknesses,” according to the IMF’s website. These programmes normally last three years with a grace period of 4-1/2 years to start paying back the loan, once the plan is approved.
A $3 billion deal would represent almost four times the country’s quota with the IMF.
The IMF said last week it was in talks with Sri Lanka for a “comprehensive” reform package, but didn’t specify what type of programme was being negotiated.
Prime Minister Ranil Wickremesinghe, who took office in May after mass protests forced the resignation of his predecessor, Mahinda Rajapaksa, plans to present an interim budget within weeks.
The government announced on Tuesday a taxation overhaul to boost revenue, hiking corporate tax and raising the value added tax (VAT) rate to 12% from 8% with immediate effect.
Sri Lanka recently appointed financial and legal advisers to kick off talks with bondholders and bilateral lenders, such as China and Japan.
The Government is targeting US $5bn this year for repayments, plus a further US $1bn to bolster the country’s reserves, Prime Minister Ranil Wickremesinghe said today.
The Prime Minister, during a meeting today with representatives from the Joint Chambers, elaborated that discussions with the IMF are proceeding and he was hopeful that negotiations would conclude by the end of the month.
The Prime Minister also explained to the representatives that debt restructuring has begun, following the appointment of financial and legal advisors.
He said that any bridging finance to help alleviate the crisis is dependant on an agreement with the IMF being reached.
Commenting further, Prime Minister Wickremesinghe stated that talks were continuing with donor nations. He added that relations with Japan had broken down, and it would take a while to repair those relations and regain their confidence.
In regards to the medicine shortage, the Prime Minister explained that former President Mohamed Nasheed was leading the international appeal for urgently needed medicine supplies.