ECONOMYNEXT – The International Monetary Fund is in constant dialog with Sri Lanka over domestic debt restructuring plans, Senior Mission Chief Peter Breuer said.
The IMF defines a macro framework, ceilings on gross financing needs (annual debt volumes that are issued and re-issued), foreign debt service, and debt stocks on a timeline for a defaulted country to make its debt ‘sustainable’.
To meet the targets a country and its creditors have to re-structure its debt. To meet GFN ceilings Sri Lanka has to at least extend the maturity of all or most of its domestic debt.
Authorities have said that Treasury bills (debt notes below 1 year) will be excluded, except for those bought by the central in the process of triggering the current economic crisis.
“We are in constant dialog with them on these issues…” Breuer told reporters in Colombo. ” A) we want to make sure that what they are working on will meet the targets and b) it will ensure both macroeconomic and financial stability.”
“We do not want them to be working for many months on their own and then come us…”
“We are here, it is part of the discussions we are having now.”
The IMF team will be in Sri Lanka till May 23. The team will know more about Sri Lanka’s progress and any corrective measures that are needed at the end of the mission.
Any domestic debt re-structuring has to ensure financial stability.
“Our role is to ensure that whatever debt restructuring strategy the the authorities decide is consistent with debt targets that are designed for Sri Lanka to restore debt sustainability,” Breuer said.
“As such we do not have any particular view on how the burden should be distributed whether they are external or domestic.
“Having said that we do have a keen interest to ensure that the domestic economy and the domstic financial system continues to work and are stable.”
The IMF expects restructuring including with foreign creditors to be completed in time for the first review of the program by September.
Uncertainty over domestic debt re-structuring had pushed up interest rates.
“So we are encouraging authorities to come up with a strategy soon to so that can be revolved, interest rates can come down and it can part of part of a virtuous cycle to restore stability,” Breuer said.
The strategy was originally expected by end April.
Authorities are also awaiting the results of a bank asset quality review.
Sri Lanka’s interest rates have always gone up after currency crises are triggered by rates cuts enforced by liquidity injections and tend to stay somewhat high as forex reserves are re-collected and loaned out under stabilization programs. (Colombo/May16/2023)