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IMF funds conditional upon Budget 2023 and creditors’ agreement

02 Sep 2022

  • To be submitted for IMF Board approval only if IMF macroecon programme is in Budget 2023 and creditors’ consensus obtained on debt restructuring 
  • IMF Mission’s Peter Breuer says process will take time, notes need for Govt. with a mandate to carry out econ reforms, expresses concern on inflation, job losses
BY Buddhika Samaraweera   In order for the International Monetary Fund (IMF) staff-level agreement to support Sri Lanka with an Extended Fund Facility (EFF) of $ 2.9 billion to be forwarded for approval by the IMF Executive Board, several prior steps will have to be taken by the Government of Sri Lanka, including the preparation of Budget 2023 in line with a macroeconomic framework that underlines the IMF's programmes, and the securing of the bilateral and private creditors’ approval to restructure debt. The IMF mission – led by IMF Monetary and Capital Market Department Debt Capital Markets Division Chief Peter Breuer, and IMF Fiscal Affairs Department Senior Economist Masahiro Nozaki – and IMF Resident Representative in Sri Lanka Tubagus Feridhanusetyawan, who recently met President Ranil Wickremesinghe, Prime Minister Dinesh Gunawardena, and Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe, had organised a media briefing at the CBSL yesterday (1). Speaking at the media briefing, Breuer said: “The IMF staff and the Sri Lankan authorities have reached a staff-level agreement to support Sri Lanka with a 48-months arrangement under the EFF of $ 2.9 billion. The objectives of the programme are to restore macroeconomic stability and debt sustainability, while safeguarding financial stability, protecting the vulnerable, and stepping up structural reforms to address corruption-related vulnerabilities, and unlock Sri Lanka's growth potential.” Noting that the staff-level agreement is subject to the approval of the IMF Management including the IMF’s Executive Board, he said that there are a number of prior actions and reforms that the Sri Lankan authorities will have to implement. He said that such actions and reforms include the preparation of the Budget 2023 consistent with a macroeconomic framework, and the receipt of private and bilateral creditors' approval to restructure debt. “Moving from staff-level agreement to the Executive Board, there are a number of prior actions that the authorities will have to take. Once they are fulfilled, it would mean that at least one of these contingencies has been met, and we can then take it to the Executive Board. An example of such actions is the preparation of the 2023 Budget with a macroeconomic framework that underlies the future IMF programmes. Another would be getting financing assurances from creditors, including private creditors,” he added. Breuer further said that the staff-level agreement is a signal of the commitment by the authorities for significant and comprehensive economic reforms. He said that the same is a credible device to show creditors that Sri Lanka is serious about engaging in reforms, and can be referred to during discussions with creditors on debt restructuring. When the media questioned as to how long the process of forwarding the staff-level agreement to the Executive Board, and the receipt of its approval, would take, he said: “The process would take time; there's a large segment of creditors, so it is very difficult to anticipate how long this process will take. We have seen, in the past, cases where this has taken a long time, but that is not in the betterment of the country. So we urge all parties concerned in this process to move expeditiously, so that Sri Lanka can emerge from this crisis as quickly as possible. The timeline of this process is dependent on how quickly the prior actions are implemented, and how quickly the debt restructuring discussions are advanced.” Speaking further, he said that it is important to note that the IMF is not part of the negotiations between Sri Lanka and the creditors, adding that it will act neutral. He said that the IMF has engaged with the authorities for a number of months in order to agree on a package of economic reforms that it thinks would address the crisis and move the country forward. He said that they are ready to forward the staff-level agreement to the Executive Board, but added that the conditions must be fulfilled. The media also questioned the IMF mission on whether they are satisfied with the prevailing political situation in Sri Lanka, to which he replied: “Our arrangement is with the people of Sri Lanka. We are here to help the country to emerge from the crisis, and the people to enjoy prosperity. The political environment matters in the sense that these economic reforms need to be carried out, and there needs to be a government that has the mandate to carry out the reforms. So the political context does matter, and we very much hope that the stability that has been prevailing will endure, so that these difficult economic reforms can be carried out.” Given that it is deeply concerned about the high inflation, and the loss of employment in the country, the IMF mission stated that therefore, the programme aims to mitigate the impact on the vulnerable groups through social safety networks.  “Tax reforms need to be designed so as to be as progressive as possible, so that the burden will not be on the vulnerable. We are very concerned about the immediate financing needed for the import of medicine, fuel, and food. Assistance in the short term is essential to prevent a humanitarian crisis,” the IMF representatives added. While the negotiations with the IMF have reached their final stage, the Government is to hold the relevant discussions on debt restructuring with the main countries that provide loan assistance to Sri Lanka, President Wickremesinghe said on Tuesday (30 August). Claiming that the process of providing daily needs like gas, electricity, and fuel without a shortage has been initiated, schools have reopened, and the universities are commencing their academic activities, the President said that all such reflects that the country is on the correct course in the short term for recovery.  He also said that the interim Budget speech, the IMF agreement, and Budget 2023 would set the framework for economic stabilisation and revival, within which, he said, the Government would set the roadmap.


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