Sri Lanka consults IMF after rejecting debt restructure proposal

Lotus tower in Colombo, Sri Lanka

Photo credits: unsplash

Reuters reports that Sri Lanka intends to engage with the International Monetary Fund (IMF) to determine if its recent debt restructuring proposals align with the terms of its financial aid program, according to a statement from the finance ministry on Wednesday.

The country recently rejected a proposal by international bondholders to restructure over $12 billion in debt.

This rejection threatens to jeopardize essential IMF support and delay the nation’s resolution of its ongoing debt crisis.

The finance ministry highlighted that after consulting with the IMF, Sri Lanka aims to resume discussions with bondholders to find a mutual agreement before the IMF board reviews the second assessment of Sri Lanka’s Extended Fund Facility program.

State Finance Minister Shehan Semasinghe expressed optimism about achieving consensus through continued negotiations.

Sri Lanka, which defaulted on its foreign debt in May 2022, began talks with bilateral creditors a few months later and by November had reached a tentative deal with major creditors including China, India, and the Paris Club.

In recent weeks, there have been productive discussions between Sri Lanka and bondholder representatives, according to Semasinghe. He noted that these meetings were beneficial, allowing both parties to address and resolve various technical issues, thus making significant strides forward in the debt restructuring process.