Sri Lanka secures US$3 billion IMF bailout – now for the difficult debt talks
- The 48-month loan programme will include an immediate payment of US$333 million to the bankrupt nation, the IMF’s executive board said
- Next is debt-relief talks, which have stalled for other vulnerable nations amid disagreements between China and traditional lenders led by the US
The lender’s executive board approved the 48-month programme in Washington on Monday, and said it will include an immediate disbursement of about US$333 million.
“Sri Lanka has been hit hard by a catastrophic economic and humanitarian crisis,” the IMF said in a statement. “The economy is facing significant challenges stemming from pre-existing vulnerabilities and policy missteps in the lead up to the crisis, further aggravated by a series of external shocks.”
The bailout will inject much-needed funding for a nation grappling with soaring prices, supply shortages and eroded foreign-currency reserves after defaulting on its overseas debt last year.
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The focus will turn next to debt talks, which Fitch Ratings has said may drag on as creditors debate whether to include local-currency sovereign borrowing in the restructuring. The rating company cut its score on Sri Lankan rupee debt in December, saying a default was probable.
The country is expected to have about US$56 billion in external debt, or about 75 per cent of its gross domestic product, this year, according to IMF estimates.
Sri Lanka’s dollar bonds due in 2030 fell for a third straight session to about 35 cents, according to indicative price data compiled by Bloomberg. The debt was little changed from immediately before the IMF announcement.
“It’s been a long road but thanks to everyone’s hard work and dedication, we’re well on our way towards better days,” Foreign Minister Ali Sabry said in a tweet on Monday. The country’s president, Ranil Wickremesinghe, also posted: “We are committed to full transparency in our efforts to achieve sustainable levels of debt and our reform agenda. The IMF programme is critical to achieving this vision.”
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“Close collaboration between Sri Lanka and all its creditors will be critical to expedite a debt treatment that will restore debt sustainability consistent with programme parameters,” the IMF said in its statement.
While shortages have eased, inflation has somewhat cooled and reserves have inched up to US$2.2 billion in February, the nation needs the IMF loan to turn the corner after falling into a deep recession in 2022.
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Since the IMF’s staff-level agreement in September, Sri Lanka has increased taxes, cut energy subsidies and returned to a more flexible exchange-rate regime to meet conditions set by the Washington-based lender. The nation also increased borrowing costs to the most since August 2001 to rein in Asia’s fastest inflation.
“With external financing coming in, we believe the government’s domestic borrowing requirement will fall, having a positive impact on domestic rates,” said Udeeshan Jonas, chief strategist at Capital Alliance group in the capital Colombo.
Some of those changes have raised concerns. Several civil society organisations on Monday sent a joint letter to the IMF detailing their worries over the impact of austerity moves on the population, as well as calling for greater transparency in how the funds will be disbursed.
Sri Lanka’s private creditors are considering a proposal to swap defaulted bonds with new securities that would have cash flow linked to the nation’s future growth, according to people familiar with the matter.
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Disbursements by the Washington-based lender are usually spread across the duration of the programme and tied to reviews, while an initial amount is released subsequent to board approval
