The International Monetary Fund (IMF) has said that there is strong expectation that Sri Lanka will enter into agreements with commercial creditors on the existing terms after completing the second review of the extended credit facility approved for the country.
Director of the International Monetary Fund’s Communications Department, Julie Kozack, said that Sri Lanka’s macroeconomic policy reforms have begun to bear fruit.
Below is the conversation between him and a reporter.
QUESTIONER: Thanks a lot. I wanted to ask about Sri Lanka and also El Salvador. In Sri Lanka, there’s some reporting that’s kind of linking the election to the program. I wanted to ask if you can sort of clarify that, and also if you have any update on the debt restructuring, including with China state creditors. And on El Salvador, same confusion to some degree. Some of us are saying that a program there is in some way linked to possibly removing bitcoin as legal tender status. I don’t know if that’s the case. And just generally, what can you say about El Salvador’s progress and possible program? Thanks a lot.
MS. KOZACK: Okay, let me start with Sri Lanka. Just stepping back to give you the lay of the land. On December 12, 2023, the IMF’s Executive Board approved the first review of Sri Lanka’s program with the IMF. It enabled a disbursement of US$337 million. And on March 21, the IMF Staff and the Sri Lankan authorities reached a Staff-Level Agreement on economic policies to conclude the second review, as well as the 2024 Article IV Consultation. Completion of the review by the Executive Board requires, first, the implementation of the prior actions that have been agreed and second, completion of what we call financing assurances review. That review would need to confirm that multilateral partners are continuing their financing contributions to Sri Lanka, and it will also assess progress with debt restructuring, and it will need to conclude that adequate progress is being made.
I would also add that macroeconomic policy reforms in Sri Lanka are starting to bear fruit. Commendable outcomes include rapid disinflation, robust reserve accumulation, and initial signs of economic growth, while preserving stability of the financial system. Public finances have strengthened following substantial fiscal reforms, and it is critical that this reform momentum be continued.
The next steps on the debt restructuring are to conclude the negotiations with external commercial creditors and to implement agreements in principle with official creditors. The domestic debt operations, you know, part of the debt restructuring, are largely completed, and there is a strong expectation that agreements with commercial creditors consistent with program parameters will be reached by completion of the second review.