LankaWeb – IMF Bailout Could Take Six Months After Service Level Deal
Courtesy of the Daily Mirror
- Professor Prema-chandra Athukorala says China’s stance on SL debt could drag out negotiations for at least six months
- Cites Zambia as an example where debt restructuring negotiations took about 7 months to conclude due to China’s initial hesitation to debt restructuring
- After reaching an agreement at the staff level, the debt restructuring advisers will approach the creditors to obtain financial assurances from them in order to obtain an IMF facility.
- However, former BC Governor Dr. Coomaraswamy and current Governor Dr. Weerasinghe expect the funds to be disbursed by the end of this year.
After reaching an agreement at the staff level, the full approval of the International Monetary Fund (IMF) envisaged According to experts, the arrangement of the Extended Financing Facility (EFF) could take around six months given the difficulties encountered in the negotiation process with the country’s external creditors, particularly China.
An IMF staff team, currently in Sri Lanka, is in discussions with the authorities with the intention of reaching a staff-level agreement on the envisaged IMF mechanism under the TPR. The mission is due to end on Wednesday and the Central Bank hopes to reach an agreement at staff level at the end of the negotiations.
Central Bank Governor Dr. Nandalal Weerasinghe recently expressed his confidence that the first tranche of the envisaged IMF program will be disbursed by the end of this year, the expectations of all external creditors, including China. , cooperating with the government to obtain financial assurances in December.
After reaching a service-level agreement with the IMF, Sri Lanka’s debt restructuring advisers are expected to formally approach the country’s bilateral and commercial creditors to seek financial assurances from them in order to obtain Board approval. Board of Directors for the proposed EFF facility.
It’s usually a matter of weeks between a staff-level agreement and a full program, but when your debt is unsustainable, you can’t move from a staff-level agreement to a full program until you have not demonstrated that you have sufficient financial guarantees to switch to a sustainable debt dynamic.
In our case, it happens in parallel. While policy discussions continue, debt advisers are working with austerities to chart the way towards debt sustainability,” former Central Bank Governor Dr Indrajit Coomaraswamy told a virtual conference. organized by the Department of Business Economics, Sri Jayewardenepura University last week.
Australian National University economics professor Prof. Prema-chandra Athukorala estimated that it would probably take another 6-7 months for Sri Lanka to get approval for the envisaged IMF program.
Zambia entered into negotiations with the IMF and reached a staff level agreement with the IMF in December 2020, but it took until last week for the debt restructuring to be completed as the Chinese were initially reluctant to participate in debt restructuring. In total, it took about 7 months,” he said.
However, in a breakthrough, China, which is not a member of the Paris Club, joined Zambia’s group of official creditors as co-chair in May this year, backing Zambia’s request for a IMF.
Many people hope that China should be more sympathetic to the Sri Lankan case, given that China has changed its approach due to the agreement with the G-20 countries (the common framework of the G20). If this happens, it will be finalized within six months. However, I don’t think that will happen in December,” he added.
However, Dr Coomaraswamy noted that it is still possible for Sri Lanka to obtain the required financial assurances from external creditors by December. Given that China’s approach may change, it is not impossible to get the first tranche by December,” he noted.