Sri Lanka Must Achieve Debt Restructuring By September: IMF

The International Monetary Fund on Tuesday reaffirmed that Sri Lanka must achieve its debt restructuring process by September, which is also the time for the global lender's formal review of the bailout facility it extended to the cash-strapped nation.

On March 20, IMF extended a nearly $3 billion bailout facility to debt-ridden Sri Lanka that would help stabilise the country's economy after it was jolted by a devastating economic crisis last year.

In a statement issued on Tuesday at the end of a nearly two weeks staff visit to Colombo to assess the progress made by Sri Lanka since the agreement was reached, the IMF said the two sides had discussed the developments on debt restructuring.

"Sri Lanka must achieve debt restructuring by its first review due in September. We also discussed progress on debt restructuring, noting the ongoing discussions with both foreign and domestic creditors," the statement read.

Sri Lanka is still struggling to normalise its crisis-hit economy after it declared its first-ever debt default in April last year.

On Monday, Sri Lankan President Ranil Wickremesinghe said Sri Lanka's debt restructuring programme will be completed by September and its bankrupt economy will be brought to a stable level. The IMF, however, wants to ensure that Sri Lanka fulfills its commitment.

"Achieving timely restructuring agreements with creditors in line with the programme targets by the time of the first review is essential to restoring debt sustainability".

During its two weeks of assessment, the IMF team was checking the progress made since the agreement was reached for the $3 billion bail-out facility over a period of four years.

They discussed recent macroeconomic and financial sector developments.

"Following strong policy efforts, the macroeconomic situation in Sri Lanka is showing tentative signs of improvement, with inflation moderating, the exchange rate stabilising, and the Central Bank rebuilding reserves buffers. However, the overall macroeconomic and policy environment remains challenging," the statement said.

"We welcome the authorities' ongoing efforts in meeting key commitments under the Fund-supported program. Performance under the program will be formally assessed in the context of the first review of the Extended Fund Facility arrangement, which is expected to be undertaken in September 2023," the statement further added.

According to official figures, Sri Lanka's total debt is $83.6 billion, of which foreign debt amounts to $42.6 billion and domestic debt amounts to $42 billion.

In April 2022, Sri Lanka declared its first-ever debt default, the worst economic crisis since its independence from Britain in 1948, triggered by forex shortages that sparked public protests.
Months-long street protests led to the ouster of the then-president Gotabaya Rajapaksa in mid-July. Rajapaksa had started the IMF negotiations after refusing to tap the global lender for support.

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