The deal includes US$ 2.9 billion to be disbursed over 48 months. The next steps will depend on Sri Lanka's ability to comply with the demands of the lending agency, which calls for financial transparency and a crackdown on corruption. Japan urges China and India to come together to assess Sri Lanka’s debt restructuring.
Colombo (AsiaNews) – Yesterday Sri Lanka reached an agreement with the International Monetary Fund (IMF) for a 48 month, US$ 2.9 billion loan, a crucial step for the bankrupt country seeking to unlock foreign financing and restructure its debt.
The loan will be made under the IMF's Extended Fund Facility (EFF), which helps countries address balance of payments or cash flow problems.
In a statement the IMF said that the EFF will help Sri Lanka restore its macroeconomic stability and debt sustainability after the programme is approved by the bank's management and board.
At a briefing in the capital Colombo, IMF officials stressed the importance of moving swiftly on debt restructuring to obtain final loan approval.
For IMF's Senior Mission Chief Peter Breuer and Mission Chief Masahiro Nozaki, the timeline for the loan disbursement will “be difficult to ascertain” but they stressed the need for urgent aid to avert a humanitarian crisis.
“The impact has been disproportionately borne by the poor and vulnerable,” they warn in a statement.
The loan, they add, will “aim to stabilize the economy, protect the livelihoods of the Sri Lankan people and prepare the ground for economic recovery and promote sustainable and inclusive growth.”
Thus far, “Vulnerabilities have grown owing to inadequate external buffers and an unsustainable public debt dynamic.”
Other reforms under the programme include curbing corruption and boosting financial transparency.
Sources in Sri Lanka’s Finance Ministry said that they are working with financial and legal advisors on a debt restructuring strategy to present to creditors in the coming weeks and provide updates on macroeconomic developments in key areas of the agreed reform package and on future steps.
Over the past few months, the island nation has been grappling with the worst economic crisis since independence (1948), resulting in political turmoil that has led to the formation of a new government.
Declining foreign exchange reserves, shortages of basic necessities, including food, fuel and medicine, and the highest inflation in Asia have devastated the economy.
According to top government sources, Sri Lanka is also negotiating with India, Japan and China for bridging financing since it needs an agreement among its "official creditors” before it can go to “bond holders”.
Some economic analysts note that it may take some time before aid arrives, depending on Sri Lanka's ability to reach agreements with its lenders and provide assurances that meet the IMF's tough belt-tightening targets.
Meanwhile, opposition MPs and some academics argue that “the agreement with the IMF is not a solution to Sri Lanka's debts; instead, it will lead to the privatisation of many establishments in the guise of restructuring them.”
For his part, Japanese Finance Minister Shunichi Suzuki today urged all creditor nations to discuss Sri Lanka’s debt restructuring since “it is important for all creditor nations, including China and India, to gather” to discuss such a goal.