Sri Lanka, with the help of its legal and financial advisors, must present a debt restructuring strategy before the end of April 2023 in order to reach the International Monetary Fund’s targets to achieve debt sustainability, Peter Breuer, the IMF Asia & Pacific Department’s Senior Mission Chief for Sri Lanka said today.

Addressing a special virtual press briefing this morning, Breuer pointed out that for the IMF to lend to a country, it usually requires a sustainable debt situation.

However, in Sri Lanka’s case, debt is not sustainable yet, but with financial assurances provided by its creditors, it is seen to be sustainable on a forward-looking basis, Breuer said further.

Using this strategy, Sri Lanka should set up talks with its creditors for negotiations on debt restructuring in order to reach the targets set by the IMF, Breuer said, explaining that doing so would mean the island nation’s debt is sustainable.

The objectives of debt restructuring targets set by the IMF seek to ensure a high likelihood of debt reduction; to keep rollover risks manageable; to avoid a renewed build-up of external pressures from debt service needs in the post-program years; and to ensure that financing gaps during the program periods are closed.

Joined by IMF’s Senior Mission Chief for Sri Lanka, Peter Breuer and Mission Chief for Sri Lanka, Masahiro Nozaki, the press briefing detailed the IMF-supported 48-month extended arrangement under the Extended Fund Facility (EFF) program of SDR 2.286 billion (approximately USD 3 billion) for Sri Lanka. 

As the executive board of the International Monetary Fund has green-lighted this extended arrangement on Monday (March 20), Sri Lanka will immediately receive an initial disbursement of USD 333 million (amounting to SDR 254 million) from the EFF arrangement, which is expected to catalyze new external financing including from the ADB and the World Bank.

According to Breuer, the first tranche of the loan is expected to be released in the next couple of days and the disbursements would be subjected to reviews every 6 months.