The Finance Ministry of Sri Lanka has released a statement addressing recent misconceptions surrounding the country’s debt restructuring process and its engagement with the International Monetary Fund (IMF). The statement, titled “Clarifications on Debt Restructuring and the Debt Sustainability Analysis,” emphasizes that any country has the right to challenge the IMF’s Debt Sustainability Assessment if it disagrees with the findings. However, the Ministry cautioned that such disputes could delay reaching an agreement on a financing program by several months or even years.
Refuting claims that Sri Lanka failed to produce its own Debt Sustainability Analysis (DSA) during negotiations, the Ministry attributed such commentary to a misunderstanding of standard debt restructuring procedures. It underscored that the IMF cannot proceed with a financing program if a country’s debt is deemed unsustainable.
The Ministry stressed the importance of timely and pragmatic action by government authorities, especially during critical moments, such as in mid-2022, when Sri Lanka faced severe economic challenges, including depleted foreign reserves, soaring inflation, civil unrest, and a near-collapse of the socio-economic system.
Sri Lanka’s current IMF-backed economic reform program marks the first instance where debt restructuring is a major pillar, making amendments to key program parameters more complex. The Ministry highlighted the vital role of the IMF’s independent DSA within the sovereign debt restructuring framework while noting that both debtor countries and creditors develop their own DSAs.
Since the beginning of the debt restructuring process in June 2022, Sri Lanka has prepared its own DSA models with the assistance of debt advisors and the IMF staff team. These models have been crucial in shaping the country’s negotiating strategy, guiding offers to various creditors, and evaluating incoming proposals to ensure alignment with IMF constraints.
While both Sri Lanka and its creditors rely on their respective DSA models during negotiations, the IMF’s DSA plays a distinct role in determining the terms of sovereign debt restructuring with specific creditors or groups of creditors.
Read Full Statement: Sri Lanka Finance Ministry
