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IMF lauds SL macroeconomic policy implementation amidst external debt deal delay

May 25, Colombo (LNW): Sri Lanka is to prove adequate progress in debt restructuring, the fulfillment of prior actions and implementation of EFF-supported programme that would confirm multilateral partners financing contributions to receive the approval of IMF executive board

Mired debt negotiations may lead to delays in restructuring, possibly impacting future IMF-EFF disbursements and hampering economic recovery efforts

However Finance Ministry is hopeful that they can reach a settlement on debt restructure focusing on the probability for reductions in principal and interest rates or extensions of debt maturities before the first half of the year. 

International Monetary Fund’s (IMF) executive board at their upcoming meeting will consider the implementation of prior actions, the EFF-supported programme, and assess the progress in debt restructuring to unlock the US$337 million third tranche of the EFF, Julie Kozack, Director of Communications at the IMF said. 

Julie Kozack told a press briefing in Washington on Thursday 16 that Sri Lanka’s negotiations with external private creditors and to implement the agreements in principle with Sri Lanka’s official creditors are yet to conclude 

The domestic debt operations are largely completed she said adding that  the initial debt restructuring negotiations with external bondholders ended in mid-April without an agreement and discussions  are continuing with a view to reaching agreement in principle. 

With respect to Sri Lanka’s economic performance, macroeconomic policies in Sri Lanka are starting to bear fruit.

Commendable outcomes include a rapid decline in inflation, robust reserve accumulation, and initial signs of economic growth, while also preserving stability in the financial system. Overall, program performance has been strong. Julie Kozack said.  

Sri Lanka is still to fulfill 30 percent of the IMF supported economic reform programme commitments due in April 2024, with over half of these “not met” commitments designed to increase transparency ‘public finance data analysis report revealed. 

According to latest Finance Ministry report, it has to finalise a settlement with bondholders, although both sides are close to reach an agreement. 

The government has proposed an Internal Rate of Return (IRR) of 9.7percent and the bondholders’ have suggested a11.51 percent. 

Both the initial and revised proposals specify that bondholders are unwilling to reduce the interest accrued during the suspension of debt repayments. In both proposals, there have been no haircuts on $ 1,678 million of accumulated interest. Only 4 percent interest rate has been proposed for 2024-2028.

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