IMF says any loan to Sri Lanka requires debt sustainability

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The International Monetary Fund logo is seen inside its headquarters at the end of the IMF/World Bank annual meetings in Washington, U.S., October 9, 2016. REUTERS/Yuri Gripas

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WASHINGTON, April 19 (Reuters) – The International Monetary Fund said talks with Sri Lanka over a possible IMF lending program were still in their early stages and that any deal would require “adequate assurances” that the debts of the island country can be put on a sustainable path.

In a statement emailed to Reuters, IMF mission chief in Sri Lanka Masahiro Nozaki said IMF Managing Director Kristalina Georgieva on Tuesday discussed lending options and policy plans with a Sri Lankan delegation.

“An IMF-supported program should be designed to address Sri Lanka’s serious balance of payments problems and put the economy back on a sustainable growth path as soon as possible,” Nozaki said.

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The statement came after protests in response to shortages of fuel and other essentials turned deadly on Tuesday and Sri Lanka’s finance minister formally requested the Fund for a Rapid Financing Instrument loan for countries with need urgent balance of payments support. Read more

Nozaki said the IMF is “very concerned about the current economic crisis in Sri Lanka and the hardships suffered by the people, especially the poor and vulnerable.”

But he noted that IMF staff had determined last month during an annual economic review that Sri Lanka’s public debt was unsustainable and that the country needed to take steps to restore debt sustainability before any IMF lending. , including the Rapid Emergency Financing Instrument (RFI).

Such restoration of debt sustainability usually requires restructuring or reprofiling of public debts, which in the case of Sri Lanka would require the cooperation of China, one of its major bilateral creditors.

The IMF has widely used low-conditionality RFI loans to help countries during the COVID-19 pandemic and has provided such loans to alleviate balance of payments problems after natural disasters, conflicts and commodity price shocks. raw materials.

“These considerations should be reviewed for a potential request for information for Sri Lanka, once adequate assurances have been obtained that debt sustainability will be resolved,” Nozaki said.

He added that the specific design of an IMF loan to Sri Lanka, including program objectives and conditionality, would be agreed following extensive discussions between the government and IMF staff.

“Discussions are still at an early stage,” Nozaki said.

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Reporting by David Lawder; Editing by Tom Hogue and Jacqueline Wong

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