Sri Lanka must consider its other options before moving towards an IMF Standing-By Agreement (SBA), with the end of the Extended Fund Facility (EFF) closing in on March of 2027; as entering into one would coincide with the Sri Lanka’s Eurobond repayments starting in 2028, International Finance Corporation Country Manager Gregory Smith said, speaking at an event organised by DFCC recently.
“If you do an SBA, in 2028, 2029, 2030, you’re going to start paying that back, at a time period where the Eurobonds go up. All you’re doing is loading those years with huge repayments, and setting yourself up for another fall. So if the Government does go for an SBA, you’re going to have to be super clear that you’re going to do some liquidity management, and solve that debt problem that will be looming over that period,” Smith said.
According to the IMF’s own statements made in August, Sri Lanka’s total principal repayment projection in 2028 is Special Drawing Rights (SDR) of 160.15 million (m), or $ 219.5 m (USD equivalents depend on prevailing exchange rates) – due across 6 dates between March and December of the year. Including charges and interest, the total obligation for 2028 is SDR 255.98 m, or $ 350.8 m. This SDR 160.15 m principal repayment coincides with the maturity of a $ 1.25 billion (b) Eurobond in April 2028.
In 2029, Sri Lanka's total principal repayment projection is SDR 253.04 m, or $ 346.8 m – which includes payments for the EFF and the Rapid Financial Instrument (RFI) that had been availed of post-cyclone Ditwah. Including charges and interest, the total obligation for 2029 is SDR 339.30 m, or $ 465.0 m.
In 2030, Sri Lanka’s projected principal repayment is SDR 329.25 m, or $ 451.3 m – continuing the combined repayment of the EFF and RFI. Including charges and interest, the total obligation for 2030 is SDR 405.14 m, or $ 555.2 m. Based on partially known data, the 2031 principal projection repayment sum is SDR 172.9 m, or $ 237.0 m, according to the IMF’s projected payments schedule issued in November of 2024. It is worth noting that the SDR 172.9 m figure is incomplete.
By 2032, Sri Lanka’s projected principal repayment amount for the EFF is SDR 253.59 m, or $ 347.6 m. The total obligation for 2032, including charges and interest, is not yet fully specified in available IMF schedules.
“So the IMF has given you $ 2-3 b, you’re in a grace period. You’ll pay a little bit of that money back on say 2028-2029, and then you'll start paying back a lot [in] 2030, 2031, 2032, which is something really important to remember,” Smith said.
Speaking of other programmes that Sri Lanka may instead access, Smith said that it must consider the Policy Coordination Instrument (PCI), or prepare its own homegrown programme, with the endorsement of the IMF, which can be used as an anchor once the EFF programme comes to an end, to maintain broader confidence.
“Or, do PCI and just get the anchor in the policies. Or, say actually, we’re going to do a homegrown reform programme, and the IMF are going to endorse it, and that’s what I haven’t seen from this Government yet. I’ve seen a manifesto, I’ve seen some bits, but what I haven’t seen is; ‘This is what we’re going to do, these are the reforms we are going to make’.”
Expanding on the lack of a homegrown programme proposed so far, Smith said he was hopeful that the Government may consider putting it forth in a possible second term, however, noting that Sri Lanka is already in a time crunch. “They haven’t managed that in their first term, maybe if they get a second term they’ll manage that. Maybe then they can call in the IMF. But it's less than 6 months now, so time is running out now. There will be a question on what Sri Lanka’s going to do in March 2027.”
“The PCI, which is just the Government committing to some IMF conditionality, but you don’t have any lending around it and they’re 2-3 years. Tajikistan, Paraguay and Seychelles had those, which were kind of nice. Senegal did one for all the wrong reasons, while hiding their debt.”
“These are the choices, each of them provide that anchor, but with different levels of conditionality; one without financing, one with some. Often people say: ‘Let’s just do the light-touch one, let’s do the SBA, because we can get some money, and it will be a success. It will be the anchor and investors will be happy’.”
Referring to the last two SBAs Sri Lanka had availed of from the IMF, Smith cautioned that Sri Lanka may be tempted to do so, as a means of meeting its balance of payments needs, with low conditionality – unlike that of the EFF.
“In the last 25 years, at the turn of the century, there have been five programmes and there have been two SBAs – which is a light touch programme that disburses over one or two years, and then you meet and you pay back over three or five years. There are [used for] quick balance of payment needs, but the idea behind them is; there aren't large structural problems. Governments quite like them, because they're a bit less intrusive. They're a bit easier to comply with.”
He noted that while Sri Lanka has been successful in concluding its SBAs in 2001 and 2009 – historically, it has been unsuccessful at completing its prior EFF programmes, adding to the caution. “The SBA in 2001, the Government did everything it needed to do and it got its 300k. In 2009, the IMF was throwing out money, left, right and centre - because of the global financial crisis. $ 1.6 b was disbursed, but again, not much was done, and that programme can be ticked successful.”
“But in 2003, and 2016, the EFF’s fell apart. Some money was drawn, but they just didn’t get anywhere. The 2016 programme fell apart, so did 2018 and 2019. This current programme has been a success for such a long time. The difference between the EFF and the SBA is that it has heavy conditionality, including this structural transformation. You get this money over 3-4 years, and crucially, you pay it back over 4 and 10 years.”
“We’ve got to switch the way the country thinks of debt management, rather than just taking eurobonds, taking big loans. You’ve got to think of when you borrow the money, and when you're going to pay it back. The current programme starts paying back heavily in 2030, 2031, 2032.”