Sri Lanka’s bondholders have told the International Monetary Fund (IMF) that they are prepared to engage with the island nation’s authorities in debt restructuring talks consistent with the parameters of the global lender’s program.
The Ad Hoc Group of Sri Lanka Bondholders conveyed its stance in a letter directed to IMF Managing Director Kristalina Georgieva on Friday (Feb. 03).
The Bondholder Group through its Steering Committee stands ready to engage quickly and effectively with the Sri Lankan authorities to design and implement restructuring terms that would help Sri Lanka restore debt sustainability and allow the country to re-gain access to the international capital markets during the IMF Programme period.”
The Bondholder Group acknowledged the Sri Lankan authorities’ engagement with their official creditors towards a resolution of the current crisis and restoration of debt sustainability.
The Bondholder Group further acknowledged that such engagement has recently resulted in the Indian government delivering letters of financing assurances to the IMF.
It has been committing to support Sri Lanka and contribute to its efforts to restore debt sustainability by providing debt relief and financing consistent with the IMF Extended Fund Facility Arrangement and the IMF Programme targets indicated in the India’s letter to the global lender.
The IMF Programme’s debt sustainability targets are identified as (i) reducing the ratio of public debt to GDP to 95% by 2032, (ii) limiting the central government’s annual gross financing needs to GDP ratio to 13% in the period between 2027 and 2032, and central government annual foreign currency debt service at 4.5% of GDP in every year between 2027 and 2032 and (iii) closing of the external financing gap.
The central government’s domestic debt – defined as debt governed by local law – is reorganized in a manner that both ensures debt sustainability and safeguards financial stability.
Assuming that annual gross financing needs should not exceed 13% of GDP in the period between 2027 and 2032, whilst allowing for central government annual foreign currency debt service to reach 4.5% of GDP in every year between 2027 and 2032, domestic gross financing should therefore be limited at 8.5% of GDP for the period 2027-2032.
While the group of bond holders recognize that the determination of the economic assumptions underpinning the IMF Programme targets are ultimately the responsibility of the IMF and that the overall design of the IMF Programme is one that is negotiated between the IMF and Sri Lanka.
It is nevertheless important that the Bondholder Group has the opportunity to express its views on both the economic assumptions underpinning these IMF Programme Targets and the adequacy and feasibility of the adjustment efforts contemplated under the IMF Programme.
When considering any restructuring proposal that is made to the Bondholder Group, it is the Bondholder Group’s intention to take into consideration the extent to which the economic assumptions and the adjustment efforts are consistent with these views.
