{"id":130895,"date":"2022-12-24T16:30:34","date_gmt":"2022-12-24T23:30:34","guid":{"rendered":"https:\/\/www.lankaweb.com\/news\/items\/?p=130895"},"modified":"2022-12-24T16:30:34","modified_gmt":"2022-12-24T23:30:34","slug":"why-is-sri-lankas-deal-with-imf-getting-delayed","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2022\/12\/24\/why-is-sri-lankas-deal-with-imf-getting-delayed\/","title":{"rendered":"Why is Sri Lanka\u2019s deal with IMF getting delayed?"},"content":{"rendered":"

Courtesy NewsIn.Asia<\/em><\/span><\/h2>\n\n\n

Dec 23 (The Hindu) \u2013 Sri Lanka is waiting for financing assurances from its bilateral creditors, including India and China, to tap support from the International Monetary Fund (IMF), according to Sri Lanka\u2019s Central Bank Governor P. Nandalal Weerasinghe, The Hindu reported.<\/p>\n\n\n\n

In September, the IMF reached a staff level agreement with Sri Lanka for a $2.9 billion package to help the island nation facing its worst economic crisis in decades. The development came months after Sri Lanka floated the rupee, opted for a preemptive default on its external debt, and increased interest rates sharply to tighten monetary policy.<\/p>\n\n\n\n

For similar articles, join our Telegram channel for the latest updates. \u2013 click here<\/a><\/strong><\/p>\n\n\n\n

However, Sri Lanka must now obtain adequate financing assurances from its creditors, for the IMF Board to approve the promised Extended Fund Facility (EFF). Colombo is desperate for the $2.9 billion not because it is a big amount \u2014 it can barely meet two months\u2019 worth of imports \u2014 but mainly to use the IMF package to qualify for more credit internationally, as the country struggles to recover from the dreadful economic crash that pushed citizens to the streets. Spanning months, the mass protests ousted the former Rajapaksa administration. President Ranil Wickremesinghe, who was elected through a parliamentary vote, has vowed to rebuild the island\u2019s devastated economy, while repeatedly acknowledging the enormous challenge the task entails.<\/p>\n\n\n\n

Delay in securing IMF support<\/strong><\/p>\n\n\n\n

Over the past few months, Sri Lanka has been in talks with China, Japan, and India \u2014 its three major bilateral creditors \u2014 to restructure the billions of dollars owed to them. We have shared all the information possible with our bilateral creditors, on an open, comparable, and transparent basis. Now they will have to look at it, make their decisions internally and come back to us\u2026we hope they will do that soon,\u201d the Governor of the apex Bank told The Hindu in an interview at his office on Tuesday. From the time the Sri Lankan government entered the provisional agreement with the IMF, India has underscored the need for creditor equitability and transparency\u201d, implying Colombo must not give any creditor preferential treatment while restructuring their loans.<\/p>\n\n\n\n

Although Sri Lanka aimed to secure IMF relief before the end of this year it failed to, as bilateral negotiations dragged. Talks with China got a little delayed\u201d, Governor Weerasinghe observed, citing internal issues\u201d such as the Chinese Communist Party (CCP)\u2019s national congress held in October, and COVID-19 restrictions\u201d in China.<\/p>\n\n\n\n

But the delay in discussions with China is not the only reason\u201d for Sri Lanka\u2019s inability to secure the IMF package this year, in his view. Japan, and the Paris Club of which it is a member, know this business\u201d [of debt restructure] as they have been doing it for many years\u201d, he said. Because of that, they are more advanced in their engagement. They have done the analysis and shared it with non-Paris Club members like India and China,\u201d Mr. Weerasinghe said, adding: Now, it is up to them.\u201d After the creditors provide financing assurances, it would likely take the IMF Board four to six weeks to approve the package, he said.<\/p>\n\n\n\n

In addition to bilateral loans, the island nation has over the years borrowed heavily from private creditors, the country\u2019s largest external credit source, holding nearly $13 billion of its outstanding debt, apart from multilateral agencies. The focus, however, is on bilateral creditors whose role is key for Sri Lanka to obtain crucial IMF support. Multilateral loans, taken on low-interest and over a long term, will not be restructured, and the actual negotiation with commercial creditors will commence only after the IMF programme kicks in, according to the Governor.<\/p>\n\n\n\n

Balance of Payments<\/strong><\/p>\n\n\n\n

With Colombo\u2019s decision to default on its $51-billion foreign debt \u2014 the Governor maintained it was a debt standstill\u201d as against a hard default \u2014 its subsequent move limiting imports to essentials, the nearly $4 billion Indian assistance and some repurposed funds, Sri Lanka waded through the last few months, despite unsuccessful attempts to obtain bridge financing. We can manage without bridge financing now, that is how we have been managing since July,\u201d Mr. Weerasinghe said. With our export proceeds, worker remittances, and some support from the Asian Development Bank and World Bank we can manage,\u201d he said.<\/p>\n\n\n\n

The Central Bank recently said there was a notable contraction\u201d in merchandise trade deficit in October 2022, compared to the previous year, even as Sri Lanka\u2019s imports continue to exceed exports by millions of dollars. Exports will probably be coming down because global demand is also going down\u2026and obviously that will impact imports as well.\u201d<\/p>\n\n\n\n

While Sri Lankan economists contend that the economy is still on a precarious path, the senior official sought to project a more hopeful picture, pitching earnings from tourism and remittances as additional benefits\u201d. Official data showed earnings from tourism crossed over $1 billion from January to October 2022, while workers\u2019 remittances went up to $3 billion during the period.<\/p>\n\n\n\n

On how Sri Lanka planned to exit the cycle of debt going forward, Mr. Weerasinghe said Sri Lanka was looking at more concessional, long-term loans\u201d only from multilateral agencies. And the relief we are expecting from other creditors is a grace period and maturity extensions so that our debt service burden in the next few years will be much lower than if we did not opt for debt restructure,\u201d he said. Sri Lanka has debt service commitments to the tune of $6 billion a year for the next several years. So, what we are seeking from our creditors is some relief, so we repay this over the next 20 years rather than in the next four, five years.\u201d<\/p>\n\n\n\n

Reflecting on Sri Lanka\u2019s past tendency in borrowings, Mr. Weerasinghe observed that it was a mistake that the country borrowed externally and spent locally, rather than use the funds to boost the country\u2019s capacity, including in exports that would have equipped Sri Lanka to repay the loans from its own earnings. That was the problem\u201d, he said.<\/p>\n","protected":false},"excerpt":{"rendered":"

Courtesy NewsIn.Asia Dec 23 (The Hindu) \u2013 Sri Lanka is waiting for financing assurances from its bilateral creditors, including India and China, to tap support from the International Monetary Fund (IMF), according to Sri Lanka\u2019s Central Bank Governor P. Nandalal Weerasinghe, The Hindu reported. In September, the IMF reached a staff level agreement with Sri […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[193],"tags":[],"class_list":["post-130895","post","type-post","status-publish","format-standard","hentry","category-imf-bailout-package"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/130895","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=130895"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/130895\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=130895"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=130895"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=130895"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}