In order to achieve debt sustainability and meet the International Monetary Fund’s (IMF) targets, Sri Lanka must present a debt restructuring strategy before the end of April 2023, according to Peter Breuer, the IMF Asia & Pacific Department’s Senior Mission Chief for Sri Lanka. Sri Lanka, with the help of its legal and financial advisors, must negotiate with its creditors to reach the targets set by the IMF, Breuer said during a special virtual press briefing this morning.
For the IMF to lend to a country, it usually requires a sustainable debt situation. However, in Sri Lanka’s case, debt is not yet sustainable, but with financial assurances provided by its creditors, it is seen to be sustainable on a forward-looking basis, Breuer explained further. The objectives of debt restructuring targets set by the IMF seek to ensure a high likelihood of debt reduction, keep rollover risks manageable, avoid a renewed build-up of external pressures from debt service needs in the post-program years, and ensure that financing gaps during the program periods are closed.
During the press briefing, Breuer was joined by Masahiro Nozaki, the IMF’s Mission Chief for Sri Lanka, to detail the IMF-supported 48-month extended arrangement under the Extended Fund Facility (EFF) program of SDR 2.286 billion (approximately USD 3 billion) for Sri Lanka. The IMF’s executive board has green-lighted this extended arrangement on Monday (March 20), and Sri Lanka will immediately receive an initial disbursement of USD 333 million (amounting to SDR 254 million) from the EFF arrangement, which is expected to catalyze new external financing including from the ADB and the World Bank.
Breuer noted that the first tranche of the loan is expected to be released in the next couple of days, with disbursements subject to reviews every six months. Sri Lanka’s debt restructuring strategy, presented with the assistance of legal and financial advisors, is expected to be a critical component in reaching the IMF’s debt sustainability targets, thus paving the way for future lending opportunities.