Timely debt restructuring crucial for Sri Lanka, says IMF 

An IMF mission conducted a staff visit to Sri Lanka From May 11 to 23, to review the implementation of the Fund’s programme aimed at helping Sri Lanka achieve debt sustainability and revive its economy after last year’s economic crash

Sri Lanka is showing “tentative signs of improvement”, the International Monetary Fund has said, while urging the island nation to reach timely restructuring agreements with its creditors, before the Fund’s first scheduled review in September this year.

An IMF mission conducted a staff visit to Sri Lanka From May 11 to 23, to review the implementation of the Fund’s programme aimed at helping Sri Lanka achieve debt sustainability and revive its economy after last year’s economic crash, the worst the country has seen since Independence. In March 2023, the IMF cleared a nearly $3 billion-dollar package for Sri Lanka, asking the country to “step up structural reforms”.

“Following strong policy efforts, the macroeconomic situation in Sri Lanka is showing tentative signs of improvement, with inflation moderating, the exchange rate stabilising, and the Central Bank rebuilding reserves buffers. However, the overall macroeconomic and policy environment remains challenging,” the visiting delegation said in a statement.

Also read: Ground Zero: In Sri Lanka, a long and rocky road to economic recovery

Referring to discussions on progress in debt restructuring, the visiting officials noted: “Achieving timely restructuring agreements with creditors in line with the programme targets by the time of the first review is essential to restoring debt sustainability.”

Earlier this month, a 17-member “creditor committee” for Sri Lanka, co-chaired by India, Japan and France, met to discuss Sri Lanka’s formal request for debt treatment. China, which is Sri Lanka’s top bilateral creditor — followed by Japan and India — attended the meeting as an observer.

In a statement following the meeting, the committee stressed the need for Sri Lanka’s private creditors and other official bilateral creditors to provide a debt treatment plan on terms “at least as favourable as the ones agreed by this creditor committee, in line with the comparability of treatment principle.” While India and the Paris Club have repeatedly underlined creditor parity, China has demanded that private creditors — who hold the largest share of Sri Lanka’s debt — as well as multilateral lenders “share the burden” of a possible haircut.