IMF ready to support Sri Lanka’s discussions with bondholders

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According to Reuters, the International Monetary Fund (IMF) has expressed readiness to facilitate Sri Lanka’s ongoing negotiations with international bondholders.

The IMF plans to provide a formal evaluation once a preliminary agreement is achieved, as stated by an IMF representative on Thursday.

The spokesperson expressed optimism that an agreement aligning with the IMF’s program guidelines and the official creditors’ Comparability of Treatment standards would soon be finalized.

This is anticipated before the second review of the program is completed. Earlier in the week, Sri Lanka disclosed that its attempts to restructure approximately $12 billion in debt with bondholders had not been successful, prompting concerns over potential delays in receiving the third tranche of its $2.9 billion IMF bailout in June.

The primary hurdle, according to the Sri Lankan government, was a discrepancy between the “baseline parameters” of the bondholders’ proposal and the conditions established in the IMF program. The IMF has urged both parties to expedite their discussions.

In its next steps, Sri Lanka intends to confer with the IMF to determine whether the latest proposals discussed with bondholders align with the terms of its bailout arrangement.

The nation defaulted on its foreign debt in May 2022, which was followed by several months of negotiations with bilateral creditors.

These efforts culminated in a provisional deal with major creditors including China, India, and the Paris Club by November last year.

The financial backdrop to these discussions is Sri Lanka’s severe economic downturn, described as the worst since gaining independence in 1948.

The crisis was precipitated by a dramatic depletion of the country’s foreign exchange reserves in early 2022, which severely hindered its ability to purchase critical imports such as fuel, cooking gas, and medicine.