IMF team in Sri Lanka to finalise bailout package

IMF officials are expected to restructure Sri Lanka’s debt amounting to $29bn in the wake of its worst financial crisis

Officials from the International Monetary Fund reached Sri Lanka on Wednesday ahead of the talks with the economic crisis-ridden country to hammer out details of the bailout package from mounting international debt.

This will include restructuring Colombo’s debt of about $29bn (£24.6bn) as the Asian island nation grapples with its worst financial crisis in more than seven decades, leading to widespread shortage of food, fuel and medicines.

“The IMF team will meet with the president and a finance ministry delegation later today,” an official at the presidential secretariat said on the condition of anonymity.

Wednesday’s visit to Sri Lanka is the second such made by the IMF in the last three months amid the country’s efforts to reach a staff-level agreement with the international lender on a possible $3bn programme as it looks to come out of the crisis.

IMF officials will also meet the central bank governor and representatives of Sri Lanka’s financial and legal advisors Lazard’s and Clifford Chance.

Sri Lanka owes $9.6bn in bilateral debt in addition to its private credit of $19.8bn, which includes the payments for international sovereign bonds, its finance ministry’s data shows.

Its primary lenders include Japan and China, out of which the bilateral debt with China is estimated to be around $3.5bn. With commercial debt included, China accounts for about a fifth of Sri Lanka’s debt portfolio.

Sri Lankan prime minister Ranil Wickremesinghe urged China to dramatically change its position on debt relief to help the country recover from its financial crisis.

“We have informed the Chinese government [of] the need to restructure [the debt] and the need for all the creditors to sing from the same hymn sheet,” the prime minister, who is also serving as the finance minister, told Nikkei Asia on Wednesday.

Mr Wickremesinghe is also expected to ask Japan for help in leading talks on bilateral debt restructuring after Sri Lanka secures IMF support.

Officials will likely lay down tracks to find a sustainable way out for Sri Lanka’s unwieldy debt — pegged at 114 per cent of the country’s GDP at the end of 2021 — in a bid to reach staff-level agreement next month.

The members of the Washington-based global lender are expected to be in Colombo till the end of August.

About 22 million people are struggling in Sri Lanka since March this year, battling soaring inflation and economic contraction after a record slump in foreign reserves.

Protests erupted in Sri Lanka in April after the administration admitted that the country is facing an economic crisis like never before.

Former president Gotabaya Rajapaksa, who was facing the public wrath for failed administration, fled the country in July and resigned from a foreign territory.