Sri Lanka defaults to Iran rise despite readiness to pay
ECONOMYNEXT – Sri Lanka has effectively defaulted payments to Iran in 2016 and 2017, during an International Monetary Fund program, due to administrative difficulties despite being willing and ready to pay.
A country with a program under an IMF program is not allowed to default on payment obligations, and repaying loans is a performance criteria or a mandatory condition, as maintaining creditworthiness is key to operating a budget and re-financing debt.
Sri Lanka had accumulated arrears of 7 million dollars by end-December 2016 and 13 million by June 2017, an IMF document showed, breaching an undertaking to pay all obligations as they fall due. Repaying foreign loans is performance criteria which are mandatory.
Sri Lank had accumulated payment arrears of a total of 42 million dollars to the Export Development Bank of Iran due to sanctions, which made it difficult to pay the country.
Sri Lanka told IMF in a revised agreement that default was "unintended and due to the non-availability of a payment platform" to make repayments.
Approving the last tranche and review under the program, IMF staff waived the performance criteria saying the volume was material and it was due to problems in the aftermath of sanctions.
"As corrective actions, authorities have now established a payment platform and expect to clear the arrears on the basis of repayment schedules, which are being negotiated with Iranian authorities." (Colombo/Aug11/2017)