Japanese Finance Minister Shunichi Suzuki on Friday urged all creditor nations, especially China and India, to discuss Sri Lanka’s debt restructuring after the recent announcement of a preliminary approval for an extended loan from the International Monetary Fund (IMF) of about $2.9 billion.
Despite the preliminary approval, the IMF said the new loan is subject to approval by IMF management and the executive board. Meanwhile, the loan cannot be made unless the Sri Lankan government has conducted satisfactory debt restructuring including debt relief arrangements with international creditors.
On Tuesday, Prime minister Ranil Wickremesinghe, head of the finance department, met with the IMF and stated that Sri Lanka needs to strike a deal with international banks that hold the majority of its $19 billion worth of debt in sovereign bonds.
“If creditors are not willing to provide these assurances, that would indeed deepen the crisis here in Sri Lanka and would undermine its repayment capacity,” IMF official Peter Breuer said. Although many technical issues had been agreed to restructure the country’s nearly $30 billion of debt, the IMF will also need to see signs of other main creditors including India, China and Japan.
Mark Bohlund, senior analyst at Redd Intelligence said “I’m optimistic that the financing assurances can be found relatively quickly,” noting Sri Lanka’s geopolitical importance for the creditors.
In addition, the IMF expected Sri Lanka’s economy to contract by 8.7% in 2022 as inflation would soar above 60%.