Finance Minister Basil Rajapaksa is scheduled to leave for the United States in the second week of April to commence the Balance of Payments (BoP) discussions with top officials of the International Monetary Fund (IMF), World Bank (WB) and US Treasury officials, as exclusively reported by Ceylon FT on 23 February.
A top Finance Ministry official told Ceylon FT, the Lankan delegation is scheduled to leave on 10 or 11 April for this high-level meeting before the Spring Meetings of the WB Group and the IMF scheduled for 22 to 24 April in Washington DC.
Sources revealed, the Sri Lankan Ambassador to Washington Mahinda Samarasinghe is making the necessary arrangements to fix the dates and times for the said meetings. However, independent economic commentators say that there are number of issues that need to be addressed before embarking on any BoP support programme with the IMF. They emphasise the urgent need to understand the parameters within which the existing unmanageable External Debt Stock could be restructured.
According to the IMF Debt Sustainability Analysts (DSA), SL’s Debt dynamics are in a very critical stage. Therefore, it cannot seek IMF support without introducing a viable Debt Restructuring mechanism.
Based on the recently concluded Article IV Consultation team of DSA, SL has a high risk of debt distress, with debt burden indicators well above the relevant thresholds in the baseline and all the stress scenarios. Accordingly, international tenders should be called for internationally recognised consultants/managers to implement this Debt Restructuring programme.
Thus, the world’s leading debt restructuring specialists, Rothschild and Co and Lazard Ltd have already focused their attention on SL.
According to sources familiar with the subject, they have recently met government officials and discussed potential plans to help the nation raise funds, including asset sales and securitised debt facilities.
Thereafter, the Debt Restructuring programme would take the course of implementation with the technical assistance of the IMF, usually a timeline of about six months before its actual implementation based on a binding agreement with the IMF for the BoP assistance programme. Accordingly, the Government would have to focus on ‘bridging finance options’ to meet the dollar demand during this transit period.
SL is eligible for IMF support under the four-year Extended Fund Facility (EFF), possibly about US$ 2 billion at an interest rate of less than 2 per cent.
An IMF programme would assist in Debt Restructuring under the Paris Club and secure new facilities from the World Bank and enable re-entry into global capital markets.
There is a reasonable probability of achieving debt sustainability, removing import controls without facing a costly restructuring of commercial loans, economists said.