ECONOMYNEXT – Sri Lanka has kicked off negotiations to re-structure its debt after the Indian Ocean island defaulted on external debt after money printed for over two years to mis-target rates and target an output gap which including with tax cuts.

“I am very pleased to announce that an agreement has been reached between the creditors to discuss the restructuring and thus get Sri Lanka out of the unprecedented crisis it is going through,” Japanese Finance Minister Shunichi Suzuki at a press conference at the International Monetary Fund.

Officials called for all parties to participate saying a fast resolution was needed.

“We hope all official bilateral creditors can participate and the negotiations can progress swiftly,” IMF Deputy Manging Director Kenji Okamura said.

Japan and France, both Paris Club nations and India a non-Paris Club nation “have been closely working on toward a coordinated debt restructuring” for Sri Lanka, according the IMF.

Paris Club India and China have agreed to re-structure debt according to a debt sustainability analysis done by the IMF.

The creditors will have to negotiated among themselves how each loan will be treated.

Sri Lanka is hoping to conclude talks by the first review of the IMF program by September.

In parallel private creditors will also work with Sri Lanka and keep tabs with bilateral creditors, officials familiar with the process have said.

Private creditors have expressed reservations about growth projections according to sources with knowledge of the matter. Unless agreement is reached on projections, private creditor are may wait for actual growth in the next year or two before agreeing to a deal, according to the sources. (Colombo/Apr15/2023)