Sri Lanka’s IMF debt analysis includes domestic debt

ECONOMYNEXT – Sri Lanka’s domestic debt is included in the perimeter of an International Monetary Fund analysis on debt restructuring though some domestic creditors could be ‘ring fenced’ according to a statement by the Finance Ministry.

An IMF debt sustainability analysis has determined that Sri Lanka’s debt is unsustainable.

‘”…[I]n the case of Sri Lanka the perimeter of the IMF DSA includes all public and publicly guaranteed (“PPG”) debt, i.e., external debt (including USD denominated instruments issued under local law), domestic debt (the service of which represents a significant share of our Gross Financing Needs) and SOEs’ debt,” the statement said.

“For this reason, we shall not a priori exclude any particular category of debt from our debt treatment strategy, except as would be seen customary in such exercise.

“However, each category of debt should be looked at from different angles, bearing in mind the potential impact a specific treatment may have on our overall macroeconomic and fiscal framework, and without jeopardizing the capacity of the economy to rebound from the current social and economic crisis.

“Indeed, a deterioration of the overall framework would further deteriorate the debt dynamics, thus requiring a deeper relief to restore long term debt sustainability.”

The value of domestic debt has already halved due to a collapse do the currency and high inflation and any other will subject them to a second re-structuring.

Foreign holders who are denominated in foreign currency however have been promised equal treatment and inter-creditor

The IMF, World Bank and Asian Development Bank would be exempted from re-structuring.

The IMF DSA perimeter also includes central bank swaps.

Sri Lanka is asking for emergency debt given since the beginning of 2022 to be excluded from re-structuring.

“…Authorities are proposing to exclude from the perimeter of debt treatment all emergency assistance credit lines provided since the beginning of the year as well as all swap lines.” (Colombo/Nov02/2022)

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