Sri Lanka eyes default exit by December; deal for third IMF review after election

Sri Lanka
By Editor_1
Central Bank chief Nandalal Weerasinghe says Sri Lanka aims to conclude its debt restructuring process by year-end - Eranga Jayawardena/AP/File
By Indika Sakalasooriya

WASHINGTON – Sri Lanka aims to conclude its debt restructuring process by year-end, with expectations for a prompt exit from the default rating category soon after, Central Bank Governor Nandalal Weerasinghe said in an interview with EconomyNext in Washington, DC this week.

“To complete the process, certain procedures must be followed, including documentation, due diligence, and related formalities,” Weerasinghe said, adding that it will take 2-3 weeks to complete the debt exchange and get the investor participation. “That will take some time. The idea is to complete before the end of December.”

Backed by the International Monetary Fund (IMF) and international advisors, Sri Lanka has secured a debt restructuring agreement with its official creditors and reached an in-principle deal with the private creditors.

The arrangement with the bondholders includes macro-linked bonds tied to the island nation’s economic growth trajectory.

Sri Lanka is also expected to finalize a debt deal with the China Development Bank and pursue debt treatment deals with other remaining official and private creditors, holding less than a billion dollars worth of debt by the end of 2024.

Weerasinghe also expressed confidence that Sri Lanka’s default rating would see an upgrade shortly after the debt restructuring process is finalized.

“We met with all the ratings agencies here in Washington. They obviously mentioned that they would follow the normal procedure. Once we start repaying our obligations, we will come out of the selective default or the restrictive default category,” he said, confident that Sri Lanka will be starting with normal CCC, or depending on the outlook get a better rating. The immediate action, he explained would be to remove Sri Lanka from the default category.

Delay in IMF Review

Weerasinghe however noted that completion of the third review of the IMF loan deal will be delayed, as a staff-level agreement in this regard will only be entered into by late November or early December.

The third review of Sri Lanka’s $3 billion, 48-month Extended Fund Facility (EFF) was initially scheduled for completion in December. However, the October presidential election and the delay in submitting next year’s budget to Parliament have deferred the timeline.

“The government has expressed its willingness to complete the third review and go ahead with the debt restructuring. So on that basis, an IMF team came to Sri Lanka and then we continued the discussions here (Washington),” Weerasinghe said, explaining that it was a review mission and Sri Lanka was trying to negotiate and complete the review as soon as possible.

However, he noted there would be an obvious delay because there is no Parliament.

He said the third review should have been completed by end-December and that it was the original timeline, but required prior actions like submitting the budget to the Parliament for next year

“What we are trying to do is to at least to reach a staff level agreement with the fund to complete the third review, but pointed out that once the discussions are completed in Washington there will be elections in Sri Lanka, and soon after that a new Cabinet will be appointed and a parliament established. “Then the mission will be there to complete and announce the staff-level agreement,” he said.

Sri Lanka is scheduled to hold polls to elect new members to the Parliament on November 14.

Weerasinghe said going to the board will be delayed because of the compilation of the third review, which requires prior actions. However, he said appointing a cabinet and a proper government, would be the invitation to start the staff-level agreement.

Out of the $3 billion IMF facility, Sri Lanka has up to now received approximately US$ 1 billion in three tranches.

-economynext.com

 

Editor_1
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