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IMF Says Any Loan to Sri Lanka Requires Debt Sustainability

Restoration of debt sustainability typically requires a restructuring or reprofiling of public debts, which in Sri Lanka’s case would require cooperation from China


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The International Monetary Fund said discussions with Sri Lanka on a potential loan programme are at an early stage and any deal would require “adequate assurances” that the island country’s debts can be put on a sustainable path.

IMF Sri Lanka mission chief Masahiro Nozaki said that Kristalina Georgieva, the fund’s managing director, discussed lending options and policy plans with a Sri Lankan delegation on Tuesday.

“An IMF-supported programme should be designed to resolve Sri Lanka’s acute balance of payments problems and put the economy back on a sustainable growth path as early as possible,” Nozaki said.

The statement came after protests in response to shortages of fuel and other essentials turned deadly on Tuesday and Sri Lanka’s finance minister asked the fund for a loan for countries needing urgent balance-of-payments support.

Nozaki said the IMF is “very concerned about the current economic crisis in Sri Lanka and hardships suffered by the people, especially the poor and vulnerable.”

IMF staff had determined last month in an annual economic review that Sri Lanka’s public debt was unsustainable, and the country needs to restore sustainability prior to any IMF lending, including an emergency Rapid Financing Instrument (RFI).

Such restoration of debt sustainability typically requires a restructuring or reprofiling of public debts, which in Sri Lanka’s case would require cooperation from China, one of its largest bilateral creditors.

The IMF used the low-conditionality RFI loans extensively to assist countries during the Covid-19 pandemic and has provided such loans to ease balance of payments problems after natural disasters, conflicts and commodity price shocks.

“These considerations would need to be examined for a potential RFI for Sri Lanka, once adequate assurances are obtained that debt sustainability will be resolved,” Nozaki said.

He added that the specific design of a Sri Lanka IMF loan, including program targets and conditionality, would be agreed through extensive discussions between the government and IMF staff.

“The discussions are still at an early stage,” Nozaki said.

 

  • Reuters with additional editing by Jim Pollard

 

 

 

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years and has a family in Bangkok.

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