Sri Lanka expects IMF to approve $2.9 billion loan by mid-December

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Sri Lanka expects IMF to approve $2.9 billion loan by mid-December

LONDON Reuters - Sri Lanka expects the International Monetary Fund to approve a $2.9 billion loan by the end of the year, officials from the country's central bank told investors during a virtual presentation on Friday.

Sri Lanka is dealing with its worst economic crisis in more than seven decades, which has resulted in shortages of essentials and the ouster of a president.

The IMF board approval of the loan is expected to be completed by mid-December. The country hopes to get funding from private and public sector creditors from now until mid-November.

The sources who are participating in the event said that Sri Lanka targets agreements in principle with all its creditors between the last quarter of the year and the second quarter of 2023.

The country reached an agreement with the IMF earlier this month for a loan of $2.9 billion, contingent on assurances from official creditors and negotiations with private creditors.

It's going to be very tough, but so much of it depends on China, basically one creditor, so maybe it can be done, said a bondholder who requested anonymity.

The Sri Lankan government decided earlier this year that it would restructure $13 billion in international sovereign bonds held by private creditors such as BlackRock and Ashmore after the virtual presentation to investors on Friday.

The virtual presentation included the Central Bank Governor Nandalal Weerasinghe and Treasury Secretary Mahinda Siriwardena, along with representatives of financial and legal advisers Lazard and Clifford Chance.

This was a typical kind of introductory presentation that we've seen a lot of times before, the bondholder said. The situation is so bad and the government is trying to anchor expectations towards a deep haircut. Sri Lanka needs to renegotiate debt with bilateral creditors such as China, Japan and India. Sources at the presentation said that Sri Lankan government officials said the country is encouraging an ad-hoc bilateral creditor coordination platform to obtain financing assurances from official bilateral creditors.

As a middle-income country, Sri Lanka is not able to engage in talks with bilateral creditors under the G 20 common framework for debt treatments, according to the World Bank.

The country officials said that the ad-hoc platform should be established by the creditors themselves as soon as possible, while the government is only promoting it.

Lazard, who is advising the government, said the initiative would resemble the G 20 platform. The presentation showed that it will allow creditors to access relevant information and a forum to discuss emergency credit lines.

Sri Lanka's total foreign currency debt of $38.7 billion is now 48.2% of GDP, according to the latest IMF report in March.

The perimeter for a local debt restructuring is still being looked into because of its impact on the domestic banking system, and no final decision has been made yet. They said that there was no default on any local currency debt.

The central bank governor said that the country has paid Sri Lanka Development Bonds in both the dollar and local currency. According to an IMF review released in March, these bonds make up $2.6 billion, which is 3.3% of GDP.