Monday, October 2, 2023

Central Bank hopeful of early International Monetary Fund deal on progress made towards debt assurances

The Central Bank remains hopeful that all bilateral creditors of Sri Lanka would provide the financing assurances to the International Monetary Fund (IMF) in the next four weeks or within the first quarter the most, which is required to unlock the bailout package. While acknowledging that the process got delayed than expected due to several reasons, Central Bank Governor Dr. Nandalal Weerasinghe said things should move fast as India had already provided its assurances while talks with Paris Club members and others are progressing constructively. 

However, he declined to comment if the two-year debt moratorium offered by the Exim Bank of China roughly a week ago provides adequate assurances to sway the IMF to accept it as a sufficient debt assurance.
Speaking last week at a post monetary policy meeting, Dr. Weerasinghe said obtaining assurances is a process between the IMF and the creditors. “In fact, financing assurances is a matter between the creditors and the IMF. So, what is expected is that creditors would issue this letter to the IMF in line with their debt targets. 

And then the IMF will have to look at it and make a decision if these assurances are sufficient for them to go ahead with their Board approval,” Dr. Weerasinghe said. 
“We are in this process and there have been very constructive engagements and discussions going on, even right now. And as a result, we hope that the IMF will be able to receive necessary financing assurances from all the creditors within a very short period,” he added.   

A fortnight ago, India gave its debt assurance in writing to the IMF, agreeing for any form of debt restructuring that may require in the process to make Sri Lanka’s external debt sustainable. 
Top diplomatic sources said last week that the IMF isn’t satisfied with the Chinese offer and hence a little more negotiations will have to be done. 

Last week, World Bank President David Malpass told Bloomberg TV that China’s actions in asking a lot of questions in the creditor committees is delaying debt restructuring of the African nation, Zambia’s debt. 
Malpass therefore urged Beijing to move away from their unreasonable demands. A string of emerging and developing countries are facing debt distress due to disruptions to foreign inflows during the pandemic, global commodities boom and the aggressive campaign by global central banks to hike rates to combat the decades high-inflation. 

These factors have resulted in flight of capital amid weakening currencies, which together caused these countries to lose their foreign reserves last year. 
Meanwhile, the Paris Club creditors are said to be getting ready to provide Sri Lanka with a 10-year debt moratorium and another 15-year period to restructure debt.

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