Sri Lanka needs extensive discussions, debt fix, for program – IMF says

Sri Lanka needs ‘extensive discussions’ for an International Monetary Fund-backed program and debt has to be made ‘sustainable’ the Washington-based lender said after the country made a request for rapid financing.

“The specific design of Sri Lanka’s IMF-supported program, including the program targets and conditionality, would be agreed through extensive discussions between the authorities and IMF staff, and guided by the applicable IMF policies,” IMF mission chief for Sri Lanka Masahiro Nozaki said.

“The discussions are still at an early stage.”

The IMF had already decided that Sri Lanka’s debt is unsustainable.

Sri Lanka will have to re-structure foreign debt to bring the gross financing needed to a feasible level and has to allow rates to go up to stop central bank financing of domestic debt.

“When the IMF determines that a country’s debt is not sustainable, the country needs to take steps to restore debt sustainability prior to IMF lending,” Nozaki said.

“Thus, approval of an IMF-supported program for Sri Lanka would require adequate assurances that debt sustainability will be restored.”

Sri Lanka suspended debt payments on April 12 but has not yet begun discussions with creditors, but has advertised for lawyers and financial advisors to evaluate debt.

Sri Lanka said on Monday that the country had made a request for a Rapid Finance Instrument, a low access facility given under certain circumstances including commodity price shocks.

AGENCIES