The International Monetary Fund (IMF) expressed the hope of Sri Lanka obtaining consent of creditors specially, Japan, India and China for debt restructure as the country has been severely affected by an economic crisis.
Financial advisory group Lazard has started talks with India, China and Japan on restructuring Sri Lanka’s debt, a spokesman for the Sri Lanka government Minister Ramesh Pathirana said on Tuesday, as the crisis-hit island nation seeks an International Monetary Fund (IMF) bailout.
Lazard was hired by Sri Lanka in May, along with international lawyers Clifford Chance, to guide the government through the process of restructuring its debt, for which estimates range from $85 billion to well over $100 billion.
IMF Managing Director, Kristalina Georgieva briefly mentioned the issue in Sri Lanka during a discussion with Centre for Global Development President, Masood Ahmed.
“So, on Sri Lanka, there are three large creditors, Japan, India, China. We are very hopeful to see an engagement from the public side that comes quickly. And then, of course, looking at all the parameters, bringing the private sector on board,” Georgieva said.
The IMF staff and the Sri Lankan authorities recently reached a staff-level agreement to support Sri Lanka’s economic policies with a 48-month arrangement under the Extended Fund Facility (EFF) of about US$2.9 billion.
Members of the ParisClub of mainly Western creditors said they are ready to talk with Sri Lanka on restructuring debt after the country concluded a staff level agreement with the International Monetary Fund.
“We note the IMF’s assessment for the need for a debt treatment in the context of the IMF program,” the organization secretariat said in a statement.
“The Paris Club is ready to start the debt treatment process and reiterates its willingness to coordinate with non-Paris Club official bilateral creditors to provide the necessary financing assurances in a timely manner and ensure fair burden sharing, as already proposed to the largest other official bilateral creditors.
“The Paris Club remains at the disposal of Sri Lankan authorities and non-Paris Club official bilateral creditors to further discuss the next steps of the debt treatment process.”
Sri Lanka’s bi-lateral creditors include China and India who are not full members of the grouping.
Sri Lanka defaulted on its debt in April 2012 after its foreign debt started to climb and growth slowed after the end of a war due to increased monetary instability coming from lower interest rates maintained under flexible inflation targeting which triggered three currency crises over seven years.
The objectives of Sri Lanka’s new Fund-supported program are to restore macroeconomic stability and debt sustainability, while safeguarding financial stability, protecting the vulnerable, and stepping up structural reforms to address corruption vulnerabilities and unlock Sri Lanka’s growth potential.
Debt relief from Sri Lanka’s creditors and additional financing from multilateral partners will be required to help ensure debt sustainability and close financing gaps.
