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SL compromises counterproposal options with IMF and external creditors

By: Staff Writer

May 21, Colombo (LNW): Sri Lanka government authorities and the IMF have discussed some counterproposal options would have already been discussed with the IMF, which could provide the IMF executive board some space to take a more lenient view of ‘adequate progress’ on debt restructuring.

Deal likely to be reached before next presidential elections in September, but unclear whether it will happen before the next IMF review expected in June

This was highlighted in note by Baqar Zaidi, Assistant to Vice President at Citi, and Citi’s Global Head of Emerging Market Economics, Johanna Chua recently.

Sri Lanka’s dollar bonds have room to rise, even as doubt remains over whether the nation can strike a debt restructuring deal before its next review with the International Monetary Fund, according to Citi.

“We think bonds have upside from current level,” analysts at the bank led by Baqar Zaidi and Johanna Chua wrote in a note

Citi expects final recovery value on bonds to be somewhere between the mid-50 cents on the dollar, based on the government’s proposal, and high 70s cents on the dollar from the bondholder offer.

“Sri Lanka’s proposal serves as a benchmark for market prices from here onwards, and the potential for upside in order to compromise with the bondholder negotiating group is substantial,” according to Citi.

With Sri Lanka achieving much-needed stability, Citi’s Global Head of Emerging Market Economics, Johanna Chua last week stressed the importance of focusing on growth-enhancing reforms if the country were to overcome ongoing challenges.

She said such a course is essential to boost private sector investment. Growth enhancing reforms also includes further opening up of Sri Lanka and its markets, she added. “Stability was essential even though it came at a cost.

Then there is also an issue of whether people feel it (stability). For this, and given the traditional weaknesses in the economy, the country needs to generate growth,” she added.

“There is a re-rating story in Sri Lanka. There is a lot of opportunity provided Sri Lanka continues on the reforms path as well as growth. Sri Lanka cannot afford to remain as a setback nation.

The best balance is to build stabilisation with growth enhancing reforms so that you can continue both, she said.

Chua was in Sri Lanka along with a group of Citi’s clients cum investors from Europe, Middle East and Asia whom she said are upbeat too. Some of the investors include holders of Sri Lanka’s International Sovereign Bonds (ISBs) who according to Chua were also exploring opportunities in local Government bonds.

“Investors are seeing a lot of growth opportunities in Sri Lanka. There’s so much potential. If the economy can grow fast, especially on a sustainable basis, then there will be an inflow of investments and funds,” Citi’s Global Head of Emerging Market Economics emphasised.

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