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Govt remains committed to reach debt restructuring targets amidst uncertainty

By: Staff Writer

April 21, Colombo (LNW): Having hit a roadblock with international bondholders, uncertainty looms over the economy of crisis-hit Sri Lanka and an upcoming review by the International Monetary Fund (IMF), experts warn.

Colombo-based economist Talal Rafi explained that with Sri Lanka still in default status and facing uncertainty regarding credit ratings and foreign investment, the economic fallout could be significant. “The larger impact is the uncertainty as no one knows what the deal will be for them to plan anything,” he said.

However Sri Lanka remains steadfast in its commitment to reaching the debt restructuring targets and is confident of smooth progress in the continued good-faith engagements for a speedy debt resolution that will ensure debt sustainability and comparability of debt treatment, State Minister of Finance Shehan Semasinghe said.

The South Asian island country announced on Tuesday that it has failed to strike an agreement with international bondholders on restructuring more than US $12 billion in debt, a mandatory requirement set out by the IMF.

 In March last year, the IMF’s board approved a $2.9 billion bailout package under a 48-month arrangement under the Extended Fund Facility (EFF) to support Sri Lanka’s economic policies and reforms.

Sri Lanka is currently on its second review and is awaiting board approval for a staff-level agreement reached in March this year. Since 1965 to 2016, Sri Lanka has had a total of 16 programs with the IMF and the current program with IMF is the seventeenth.

The delay in reaching an agreement could also affect Sri Lanka’s upcoming IMF review, which is scheduled for June, Rafi said. “As debt restructuring is a key condition for the IMF, it would have an impact on the time taken for board approval.”

 But State Finace Minister further stated, it was heartening to note the widespread appreciation and support for Sri Lanka’s debt restructuring process.

“We remain steadfast in our commitment to reaching the restructuring targets and confident of smooth progress in the continued good-faith engagements for a speedy debt resolution that will ensure debt sustainability and comparability of debt treatment,” he added.

The program specifically supports Sri Lanka’s efforts to restore macroeconomic stability and debt sustainability, safeguard financial stability, and enhance growth-oriented structural reforms.

In April 2022, the country defaulted on its foreign debt for the first time, triggering the worst economic crisis in its history. According to official data, Sri Lanka’s gross official foreign currency reserves inched up to $4.5 billion million in February.

Moreover, the nation’s impending presidential election piles pressure on the government to accelerate the negotiation process, raising concerns about the sustainability of any deal struck hastily under such circumstances.

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