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IMF induces a strategy for SLs financial sector stability in DDR scenario

By: Staff Writer

Colombo (LNW): The Fund’s Asia and Pacific Department Director says IMF with the govt. will “flesh out a strategy” soon to safeguard financial sector in Domestic Debt Restructure scenario.

Hints that DDR was included in SL’ debt restructuring plan before the approval of IMF programme IMF has insitsed the government to heed the demand of other creditors although it is difficult task with banks , other stake holders and opposition politicians pressure.

The International Monetary Fund (IMF) plans to support the government to come up with a strategy to safeguard financial sector stability in a potential domestic debt restructuring (DDR) scenario, a top official of the Fund said.

“When you restructure domestic debt, you have to make sure that you also safeguard financial stability. So, these are issues on which the government is currently working and we’ll flesh out a strategy on that, hopefully very soon he pointed out.

He hinted that domestic debt restructuring was included in Sri Lanka’s debt restructuring plan before the approval of the IMF programme given the significant challenges on the path to debt sustainability.

“In terms of restructuring, the debt in Sri Lanka was assessed to be unsustainable. And that’s why, before the programme could be approved, there had to be a path towards restoring sustainability.

And that includes restructuring debt to all creditors – private creditors, official creditors, and to some extent, domestic debt, for the simple reason that debt sustainability is quite a big challenge in Sri Lanka,” he added.

The government is expected to come up with a comprehensive debt restructuring framework this month. The Central Bank recently revealed that Domestic Debt Optimization (DDO) on a voluntary basis would be included in the country’s debt restructuring strategy.

Commenting on economic recovery, senior finance ministry official highlighted that unlike previous IMF programmes, the current IMF programme put Sri Lanka on the path to prosperity as the successful implementation of it is directly linked to debt sustainability following the country’s default on external debt.

“The next step for them is to embark, to make good faith efforts to reach a debt agreement with their creditors – private creditors, official creditors and so on. In terms of growth outlook itself, we had a contraction of 8.7 percent 2022. We have growth contracting at 3 percent in 2023 and then making a mild recovery.

But, the issue will be for Sri Lanka to implement the programme well so that debt can be made sustainable, which is a big difference from previous programmes, and the country can be put on the path to prosperity,” he elaborated.

The IMF expects the current programme, which is lying on revenue-based consolidation, to bring in macro-economic stability while curtailing inflation.

Although, inflation has slowed down from record high levels last year, the IMF officials noted that inflation has to come down durably.

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