Sri Lanka’s Central Bank Governor Dr. Nandalal Weerasinghe says the International Monetary Fund’s disbursement of the Extended Fund Facility to Sri Lanka can be expected by the end of the year, subject to the success of debt restructuring with creditors and successful negotiations with the IMF.
Speaking on Bloomberg Television, the Governor also discussed inflation in Sri Lanka, monetary policy and the country’s domestic debt.
Asked whether he can give the IMF assurances that Sri Lanka’s debt is sustainable without restructuring domestic debt, he said: “This is exactly what we are discussing with the IMF.”
“First part is to reach a staff-level agreement on the overall macro fiscal policy framework for the next 3-4 years and the medium-term framework, that we are coming closer to reaching an agreement on a macro fiscal framework.”
“The second part is for us to agree and negotiate with the debt targets for us to make our medium to long term debt sustainable. We are in the process of having this discussion. Only after that basically what we can say where the debt targets we have to meet.”
He said that they are currently discussing with the IMF and that they hope to reach that agreement as well. “Then only we will approach the creditors,” he said.
“In term of domestic debt, we are restructuring our position as I mentioned earlier that remains as we announced on 12th of April; we would like restructure only external debt and if we touch domestic debt now that will have a significant impact on our banking sector. That will not help any even the external creditors in terms of recovery of the economy.”
“We need to have a stable banking system. That is why our position as we announced earlier remains. That this is a balance of payment crisis. We want to restructure our external debt because of the balance of payment situation and our ability meet external debt service payments. We don’t see a problem with us meeting the domestic debt targets. So, this is why we think we can manage that situation without touching domestic debt.”
Dr. Weerasinghe was also asked when does he think the country will get that funding, realistically, if all goes to plan.
“This is where we think….. for an example now once we reach the staff-level agreement, then the timeline is set. Then we have to approach all our external creditors and start negotiating and discussing in good faith for us to obtain a relief on the debt service payments.”
“For that we need what they call ‘financial assurance’ from our external creditors. We think next about 3-4 months, hopefully if all goes well, if all external creditors are cooperating with the Sri Lankan government’s debt management strategy, then hoping that we would be able to get financial assurance somewhere is December, so the IMF can submit our paper to the executive board so that disbursing the Extended Fund Facility towards end of this year.”
“That is our timeline that we would like to basically implement. That all depends on how we got the support from the external creditors and how the negotiation process is going on. So, this uncertainty is there so hopefully all will be supporting us,” the central bank chief said.
“In fact, we have not officially approached the creditors through our advisers yet. That will only happen after we reach a staff-level agreement with the IMF. Probably next month,” he added.
Asked whether the foreign exchange crisis is over in Sri Lanka, he said: “Yes, I think we can see the situation is much easing. And even without any bridging financing now we can manage the requirement for essential imports with higher exports and curtailing imports. And we are managing the situation much better than what we had earlier. So, going forward we can manage the forex situation much better. We can see stabilizing in currency.”
