IMF team arrives to support economic reforms in Sri Lanka | Sunday Observer

IMF team arrives to support economic reforms in Sri Lanka

14 May, 2023

A staff team from the International Monetary Fund (IMF) arrived in Sri Lanka on Thursday (May11) as part of the global lender’s ongoing consultations with the island nation. The visit aims to support the country’s economic reforms and pave the way for the first review mission later this year. The team, led by Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, will be staying in Sri Lanka until May 23.

The IMF’s engagement comes at a crucial time for Sri Lanka, as the Government recently presented a formal request for debt treatment during the first meeting of the official bilateral creditors committee. The committee, co-chaired by India, Japan, and France, includes 17 members and aims to facilitate coordinated restructuring of Sri Lanka’s debt. Observers from China, Saudi Arabia, and Iran were also present during the meeting.

With a total debt of USD 7.1 billion owed to bilateral creditors, Sri Lanka is actively seeking support to address its debt sustainability challenges. China holds the largest portion of the debt with USD 3 billion, followed by the Paris Club of creditor nations with USD 2.4 billion and India with USD 1.6 billion. In addition to bilateral debts, the Government needs to renegotiate over USD 12 billion of debt in Eurobonds with overseas private creditors and USD 2.7 billion of other commercial loans.

The IMF’s Extended Fund Facility (EFF) program, approved in March, provides a framework for economic reforms and debt relief. The program comes with strict conditionality’s aimed at restoring debt sustainability and promoting fiscal stability.

Sri Lanka has already secured assurances from official bilateral creditors, indicating their commitment to assist with debt relief and financing in line with the IMF-supported EFF program. The IMF has also acknowledged the Government’s efforts to reach a private agreement with private creditors.

As a result of meeting the requirements ahead of the IMF Board meeting in March, the executive board approved a 48-month extended arrangement of 2.286 billion SDR (Special Drawing Rights), equivalent to USD 3 billion, for Sri Lanka. This financial support will assist the country in implementing the reforms and achieving sustainable economic growth.

During their visit, the IMF staff team will hold meetings with various stakeholders, including President Ranil Wickremesinghe, to discuss the country’s economic situation and progress on reforms. The team will also conduct a press briefing tomorrow in Colombo to provide updates and insights on the IMF’s engagement with Sri Lanka.

The IMF’s presence and support in Sri Lanka demonstrate its commitment to fostering economic stability and growth in the country. By providing financial assistance and expertise, the IMF aims to help Sri Lanka navigate its debt challenges, implement essential reforms, and create a sustainable economic future.

Prof. Nihal Hennayake, Department of Business Economics, Faculty of Management and Finance, University of Colombo is positive that Sri Lanka’s current course will increase international credibility on the Government since the IMF has chosen to assist the country. “With that, other international institutions and donor agencies will start trusting us”. He said that the IMF’s bailout has fast-tracked Sri Lanka to get back to its previous best situation.

However, Dr. Kalpa Rajapaksha, lecturer on Marxist Political Economy at the Department of Economics and Statistics, University of Peradeniya warned that Sri Lanka will have to go for another IMF program. “We are challenged in two dimensions.

The restructuring process won’t work in terms of debt and in terms of economic restructuring. Secondly, our debt burden will increase.

Nobody is talking about the interest rate of the IMF’s loan, which is going to be huge and is ignored by mainstream economists”, he said.