Sri Lanka to announce debt restructuring strategy in April: central bank chief

SRI Lanka aims to announce a debt restructuring strategy in April and step up talks with commercial creditors ahead of an International Monetary Fund (IMF) bailout review in six months, the nation’s central bank governor told Reuters.

The crisis-hit island has secured financing assurances from all its major bilateral creditors, including India and China. This has set the stage for the IMF to give its final approval for a US$2.9 billion, four-year bailout package on Mar 20, the multilateral lender said on Tuesday (Mar 7).

The bailout is the culmination of months of negotiations, as Sri Lanka seeks to emerge from its worst economic crisis in more than seven decades.

“When you see the staff-level agreement published – that will contain our commitment to debt restructuring, and that will also reveal medium-term debt targets for us to restore debt sustainability on a long-term basis,” central bank governor P Nandalal Weerasinghe said on Thursday.

“So somewhere in April we will announce… how we are going to meet those medium-to-long-term (debt) targets. That is the next step.”

Weerasinghe said Sri Lanka would expedite negotiations with commercial creditors and announce this strategy in consultation with them, before finalising the debt restructuring terms.

“We are trying to finalise this in about the next six months… before the next (IMF) review will be completed,” he said. He added that Sri Lanka would need to restore debt sustainability over a 10-year period as per the agreement with the IMF, and that the lender would provide a road map to bring down debt levels over that period.

President Ranil Wickremesinghe told parliament on Tuesday that Sri Lanka had to repay about US$6 billion annually until 2029. But Weerasinghe said this amount would be reduced post-debt restructuring.

The central bank has been gradually topping up reserves, with usable US dollars reaching about US$600 million at the end of last month, the highest in a year. Sri Lanka also has a US$1.5 billion swap arrangement with China, but that can only be used if domestic reserves support three months of imports.

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“If we build up reserves, we may be able to access the (China) swap; until then we don’t mind keeping it in our books. If we meet the conditions of three months of reserves, we can use it,” Weerasinghe said.

The governor added that inflation was likely to come down faster than earlier predicted, even by the central bank. Rising prices have been a key concern; the latest print in February showed that inflation had eased, but remained above 50 per cent.

“Earlier, my expectation was for 4 per cent to 6 per cent inflation somewhere in December. I would now expect it in early Q4 rather than the end, the process will move faster, from about end October,” he said. REUTERS