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Calculation mismatch delays SLA with IMF

20 Aug 2022

  • IMF, CBSL face issues on Debt Sustainability Analysis parameters
  • Disagreements between institutions regarding GDP growth projections
  • Analyst reveals complete DSA required for deal with IMF
  • Senior State bank sources confirm SLA has hit temporary roadblock
  • Says main structural change IMF requested has been achieved
  By Shenal Fernando   Sources reveal that Sri Lanka’s attempt to reach an International Monetary Fund (IMF) Staff-Level Agreement (SLA) is currently being held up due to discrepancies in the calculations of the Central Bank of Sri Lanka (CBSL) and the IMF with regard to certain parameters in the Debt Sustainability Analysis (DSA).   Speaking to The Sunday Morning Business, a senior banking source revealed that Sri Lanka had achieved considerable progress in its current discussions with the IMF in order to reach an SLA. However, he revealed that the talks were currently being held up due to an issue that had arisen regarding discrepancies in the calculations of the IMF and the CBSL on certain parameters in the DSA. “The main structural change the IMF requested was regarding the pricing of public utilities. This was achieved. The only issue in conflict now is these differences between the IMF and the CBSL calculations,” he explained. Speaking to The Sunday Morning Business, Attorney-at-Law Manjuka Fernandopulle, who specialises in sovereign debt restructuring and complex capital market transactions, stated that currently there was a disagreement between the CBSL and the IMF with regard to future GDP growth projections and that the issue concerned the degree to which the debt overhang would affect GDP growth going forward. CBSL Governor Dr. Nandalal Weerasinghe at the presentation of the Monetary Policy Review No. 6 of 2022 revealed that they had revised their previous GDP growth forecasts for 2022. Accordingly, the CBSL expects the Sri Lankan GDP to contract by over 8% during 2022, surpassing the previous forecast of a 7.5% contraction. However, he further stated: “The sharper contraction of the economy during this year means that economic recovery from next year onwards will be sharper as well.” Meanwhile, First Capital Holdings PLC Head of Research for Investments, Fixed Income, and Equity Dimantha Mathews revealed that Sri Lanka needed to complete the DSA and enter into an agreement with the IMF on the debt sustainability level the country would seek to achieve before its financial advisor Lazard presented the possible debt restructuring scenarios to the creditors in order to negotiate and reach an agreement. A recent report published by the Ministry of Finance, Economic Stabilisation, and National Policies revealed that as per the Debt Sustainability Analysis conducted by the IMF, Sri Lanka’s public debt had reached unsustainable levels and stood at 114% of GDP by the end 2021, of which 47% was denominated in foreign currency. Commenting on this report, Fernandopulle stated: “The debt mix in Sri Lanka is complicated. From my exchanges with the bondholders’ lawyers, it is my belief that they are going to push for domestic restructuring. The quantum of domestic debt is around $ 50 billion. They will want to see the burden of debt relief shared by at least the banks and even the EPF.  “They will also insist on transparency in negotiations. This means that they will insist on full disclosure of what is being offered to the Chinese. The Chinese are going to insist on confidentiality and preferential status. The Japanese will insist that the Paris Club terms be applied to the Chinese.”  


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