‘IMF presence would boost confidence of potential lenders’

The presence of the IMF would give confidence to existing creditors and potential future lenders like the World Bank the ADB and others that might come forward with money later, That is why it is essential to see this staff agreement in that light with the two technical groups Sri Lanka and IMF having agreed to the contours of the reform program, opined Anushka Wijesinha, Economist and Co-Founder of Centre for a Smart Future talking in the AdvoChats discussion held recently.

The role of the IMF coming in a scenario where a country has defaulted in its debts which Sri Lanka did in mid April would be quite different from the previous programs. The IMF is coming to the table in the context of a debt restructure this time and would be playing an important role for both Sri Lanka and its creditors, private creditors such as ISP bond holders, syndicated loan lenders would want to know whether Sri Lanka is going to get back on track and going to stick on to the plan and even after a haircut repay them the rest of the money. For that they essentially would outsource the functions of monitoring and independent watchdog to the IMF, he said.

Once Sri Lanka has the IMF program formally in place by getting the IMF board approval in a couple of months private creditors are going to look at the forecast , budget deficit targets, promises the Sri Lankan side has made and would then monitor that through the next couple of years through the program. They would also rely on the IMF stake and reviews on the Sri Lanka economy and program that happened with every tranche disbursement.

One tranche or two tranche down the line if the IMF says a lot of restructure benchmarks have not been met and would hold on future disbursement because the targets will be missed, that’s going to worry the creditors, Wijesinghe said.

He also noted that there is a worrying track record with regard to the implementation of the programs with the IMF with almost half of the previous programs with the IMF not being completed because the reforms didn’t get anchored properly.