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IMF Confirms Progress in Sri Lanka’s Debt Restructuring Efforts

The International Monetary Fund (IMF) affirmed this week that Sri Lanka’s debt restructuring efforts have gained significant momentum. Julie Kozack, Director of the IMF Communications Department, expressed confidence in the island nation’s progress during a press conference, noting that “overall, we assess that there has been sufficiently strong progress on the debt restructuring front.”

Kozack revealed that Sri Lankan authorities have been engaged in extensive discussions with external official creditors regarding a memorandum of understanding with the official creditor committee and final agreements with the Export-Import Bank of China. Additionally, negotiations with external bondholders and the China Development Bank are at an advanced stage, with strong expectations that agreements consistent with program parameters will be reached soon.

On March 21, the IMF staff and Sri Lankan authorities reached a staff-level agreement on economic policies to conclude the second review of the program and the 2024 Article IV Consultation. The IMF Executive Board will meet next week (June 12) to discuss these matters. Kozack reiterated that recent macroeconomic policy reforms are yielding positive results, citing rapid disinflation, robust reserve accumulation, and initial signs of economic growth while maintaining financial system stability. She emphasized that the next steps include concluding negotiations with external commercial creditors and implementing agreements in principle with official creditors.

Sri Lanka must secure agreements with bilateral lenders and bondholders to continue receiving funds from its $3 billion IMF bailout. The IMF will review these agreements to ensure they provide sufficient relief for Sri Lanka to achieve debt sustainability. Government data indicates that Sri Lanka owes $10.6 billion to bilateral creditors, with China accounting for over 40 percent of this debt. Additionally, Sri Lanka needs to restructure $12 billion in debt with international private creditors.

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