IMF accepts India debt assurance for Sri Lanka, China, others awaited

COLOMBO – The International Monetary Fund (IMF) has accepted an assurance given by India to re-structure Sri Lanka’s debt and is awaiting similar commitments from other creditors, an IMF spokesperson said.

“We confirm that India has indicated to the IMF management that it is committed to deliver financing/debt relief consistent with restoring the sustainability of Sri Lanka’s public debt under the prospective IMF-supported program,” and IMF spokesperson said, welcoming the commitment Indian has provided.

China also gave an initial response on debt re-structuring to Sri Lanka though analysts familiar with the process say it is not a ‘hard assurance’ sufficient for the IMF program to go through.

The IMF also made no mention of the Chinese response, which Sri Lanka authorities said had been referred to the lender for a reaction.

“A little more negotiation will have to be done,” a highly placed source familiar with the negotiations said.

China is expected to directly provide such assurance to the IMF for its program to go through.

“Sri Lanka is engaged with other official bilateral creditors to obtain similar assurances,” the spokesperson said.

“As soon as adequate assurances are obtained and remaining requirements are met, including by the Sri Lankan authorities, a Fund-supported program for Sri Lanka can be presented to the IMF’s Executive Board for approval that would unlock much needed financing.”

The Paris Club of Western lenders and Japan have long experience in dealing with sovereign debt work outs and their debt assurance is expected to be a formality.

However a source with knowledge of its current stance say, it will provide debt assurance as soon as China gives adequate assurance.

Sri Lanka has largely achieved external stability by December 2022 after tightening monetary policy. Parallel exchange rates have also unified as inflationary policy was pulled back.  Taxes have also been raised to reduce credit pressure.

However the central bank has started to ease monetary policy and is also pushing risk averse banks to stop private sterilization which can inject new demand and jeopardise and external anchor at 360/370 to the US dollar that has also ended price inflation.


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