Cash-strapped Sri Lanka is exploring the options for domestic debt restructuring in the post-IMF bailout scenario to further stabilise its shaken economy, an official statement said on Friday.
Sri Lanka earlier this month received $330 million as the first tranche of the International Monetary Fund (IMF) bailout programme. This will help the debt-ridden country to achieve better fiscal discipline and improved governance.
In a statement issued by the Sri Lankan the Governor of the Central Bank and the Secretary to the Treasury said "the Authorities are also exploring options for a domestic debt optimisation (DDO) operation aimed at liquidity relief while preserving financial stability to avoid further erosion of Sri Lanka's repayment capacity".
The statement also mentioned that despite the government's effort for fiscal consolidation efforts, the country’s public debt trajectory is set to remain unsustainable in the absence of comprehensive debt treatment.
The statement said, "Sri Lanka is also facing a significant external financing gap over the IMF program period. This financing gap will have to be covered through new external funding and external debt service relief."
IMF
The IMF Board on March 20 approved Sri Lanka's IMF program which the country claimed would enable them to unlock up to $7 billion in funding from the IMF and other lenders.
"As per the IMF program, we are fully committed to achieving fiscal consolidation and implementing fiscal structural reforms; restoring public debt sustainability; restoring price stability and rebuilding external buffers; safeguarding financial system stability; and reducing corruption vulnerabilities and further introducing growth-enhancing reforms," the statement said.
The statement also notes that the economy had already shown some encouraging stabilisation signs, with year-on-year inflation slowing down and earnings from tourism rebounding to more standard levels.
The government in the statement said that it will continue to implement its reform agenda in order to support Sri Lanka's economic recovery and successfully complete the IMF program.
Debt treatment
To move ahead, Sri Lanka is looking forward to reaching debt treatment agreements that are consistent with the IMF debt sustainability analysis and with the comparability of treatment principle.
Debt default in April
In April 2022, Sri Lanka declared its first-ever debt default in its history as the worst economic crisis since independence from Britain in 1948 triggered by forex shortages sparked public protests.
It was after months of frustration and street protests in mid-July that led to the ouster of the then-president Gotabaya Rajapaksa.
Initially Rajapaksa was not interested in going to the global lender for support, but in the depleting situation he had to begin the IMF negotiations for support for the cash-strapped island nation.
Since the situation went downhill, Sri Lanka has introduced painful economic measures such as tax hikes and utility rate hikes to unlock the program.
The trade unions and opposition groups in Sri Lanka have organised protests against such measures.
With inputs from agencies
