Sri Lanka aims to complete .9 billion IMF loan in December – sources

Sri Lanka aims to complete $2.9 billion IMF loan in December – sources

Written by Giorgelina do Rosario and Oditha Jayasinghi

LONDON (Reuters) – Sri Lanka expects the International Monetary Fund’s board of directors to approve a $2.9 billion loan by the end of the year, officials from the country’s central bank told investors during a virtual presentation on Friday, sources involved in the event said.

Sri Lanka is grappling with its worst economic crisis in more than seven decades, which has led to a shortage of necessities and the ousting of the president.

The IMF board is expected to approve the loan by mid-December. Between now and mid-November, the country aims to secure financing guarantees from both public and private creditors.

Sources involved in the event said Sri Lanka is in principle targeting agreements with all its creditors between the last quarter of the year and the second quarter of 2023.

The country earlier this month reached a staff-level agreement with the International Monetary Fund for a loan of about $2.9 billion, on the condition that it obtain financing guarantees from official creditors and negotiations with private creditors.

“It’s going to be very difficult, but a lot of it depends on China, which is basically one creditor, so maybe it can be done,” said one bondholder, who asked not to be identified.

Friday’s virtual investor presentation marks the first time the Sri Lankan government has formally engaged with private bondholders after it decided earlier this year that it would restructure $13 billion in international sovereign bonds, held by private creditors such as principals. BlackRock Origins (NYSE πŸ™‚ and Ashmore.

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Central Bank Governor Nandalal Weirasinghe and Treasurer Mahinda Siriwardena took part in the virtual presentation, along with representatives from financial and legal advisors Lazard (NYSE:) and Clifford Chance.

β€œThis was a fairly typical kind of introductory offer that we’ve seen a lot before,” the bondholder said. “The government is basically determining how bad the situation is trying to anchor expectations towards a deep haircut.”

Bilateral debt talks

Sri Lanka also needs to renegotiate debt with bilateral creditors such as China, Japan and India. Sources who attended the presentation said Sri Lankan government officials said the country is promoting a bilateral coordination platform dedicated to creditors to obtain financing guarantees from official bilateral creditors.

As a middle-income country, according to the World Bank, Sri Lanka is not able to enter into talks with bilateral creditors under the G20 Joint Framework for Debt Management.

Qatari officials added that the dedicated platform should be set up by the creditors themselves as soon as possible, while only being promoted by the government.

Graphic – Sri Lanka’s path to debt talks

Sources said Lazard, who advises the government, said the initiative would be similar to the G20 platform. The offer showed that it would provide an equal base for creditors to access relevant information and a forum to discuss emergency lines of credit, according to the sources.

The latest International Monetary Fund report in March showed that Sri Lanka’s total foreign currency debt of $38.7 billion amounts to 48.2% of GDP.

Government officials added that the perimeter of domestic debt restructuring is still under consideration due to its impact on the local banking system, and a final decision has yet to be taken. They added that there has been no default so far in the payment of any debt in the local currency.

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The central bank governor said the state paid Sri Lanka’s development bonds in dollars and local currency. These bonds make up $2.6 billion, which is 3.3% of GDP, according to an IMF review released in March.

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