Daily Management Review

Any Emergency Debt To Sri Lanka Will Need Debt Sustainability, Says IMF


Any Emergency Debt To Sri Lanka Will Need Debt Sustainability, Says IMF
The International Monetary Fund said talks with Sri Lanka about a possible IMF loan programme are still in the early stages, and any agreement would require "sufficient indications" that the island country's debts can be managed in a sustainable manner.
IMF Sri Lanka Mission Chief Masahiro Nozaki told Reuters that IMF Managing Director Kristalina Georgieva met with a Sri Lankan delegation on Tuesday to review loan possibilities and policy objectives.
"An IMF-supported program should be designed to resolve Sri Lanka's acute balance of payments problems and put the economy back on a sustainable growth path as early as possible," Nozaki said.
The announcement came following fatal protests in reaction to fuel and other vital shortages on Tuesday, and Sri Lanka's Finance Minister formally requested a Rapid Financing Instrument loan for countries in need of immediate balance-of-payments assistance from the IMF.
Nozaki stated that the IMF is "very concerned" about Sri Lanka's current economic crisis and the hardships that its citizens, particularly the poor and vulnerable, are experiencing.
However, he pointed out that the IMF's staff determined last month in an annual economic assessment that Sri Lanka's public debt was unsustainable, and that the country must take actions to restore debt sustainability before receiving any IMF assistance, including the emergency Rapid Financing Instrument (RFI).
A restructuring or reprofiling of public loans is often required to restore financial sustainability, which in Sri Lanka's case would necessitate cooperation from China, one of the country's main bilateral creditors.
The IMF used low-conditionality RFI loans extensively to help nations during the COVID-19 epidemic, and it has also used them to help countries with balance of payments issues following natural catastrophes, conflicts, and commodity price shocks.
"These considerations would need to be examined for a potential RFI for Sri Lanka, once adequate assurances are obtained that debt sustainability will be resolved," Nozaki said.
He went on to say that the details of a Sri Lanka IMF loan, such as programme targets and conditionality, would be worked out after long consultations between the government and IMF officials.
"The discussions are still at an early stage," Nozaki said.