Sri Lanka aims for rapid progress in talks with creditors

Sri Lanka has kicked off debt negotiations with its bilateral and private creditors, saying it aims to make enough progress in the talks to unlock a $2.9bn IMF loan by the end of this year.

In a presentation to creditors on Friday, Sri Lanka’s finance ministry and central bank said they hoped to receive final approval for the IMF loan by mid-December. They said Sri Lanka would then aim to complete a restructuring agreement with its other creditors by the middle of next year.

The timeline, which analysts said was ambitious, was unveiled as the island of 22mn people battles its worst economic crisis in decades.

Sri Lanka, which in May became the first nation in the Asia-Pacific region to default in more than two decades, received preliminary approval for the IMF bailout program this month.

President Ranil Wickremesinghe’s government now needs to make progress in debt relief talks with its other creditors, which include private bondholders as well as countries such as China, Japan and India.

Under IMF rules, Sri Lanka must demonstrate financing assurances from bilateral creditors and “good faith” talks with private creditors before the fund can finalize the bailout.

Analysts do not expect the negotiations to be easy. Among other things, they are expected to require a degree of co-operation between arch-rival creditors such as China and India, both of which compete fiercely for geopolitical influence on the island.

With sovereign debt distress spreading, exacerbated by high inflation and slowing growth, investors and policymakers globally have taken a keen interest in Sri Lanka’s restructuring.

In their presentation, the Sri Lankan authorities urged bilateral creditors to form an ad hoc “platform”, or committee, in order to streamline the negotiations. They argued that this would “increase trust and build an environment for constructive discussions”.

Sri Lanka’s foreign debts total about $50bn, according to the presentation, with the largest portion owed to private bondholders at almost $20bn. Sri Lanka owes more than $7bn to China and smaller sums to Japan and India.

Japan’s ambassador to Sri Lanka on Friday told Reuters the country would play a “constructive role” in the negotiations. India earlier this week said it had initiated talks with Sri Lanka.

Analysts are closely watching the actions of China, whose significance as a lender to the developing world has grown in recent years. In July, Beijing agreed to provide debt relief to Zambia, and Chinese lenders signed a $1.4bn restructuring deal with Ecuador this week.

Sri Lanka has suffered chronic shortages of food and fuel, a dramatic drop in living standards and months of mass protests after effectively running out of foreign reserves. Former president Gotabaya Rajapaksa was forced to flee the country and resign in July.

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