Sri Lanka has not approached creditors officially - CBSL Chief

COLOMBO (News 1st); Sri Lanka's Central Bank Governor Nandalal Weerasinghe speaking to Bloomberg on Monday (22) said once Sri Lanka reaches a Staff-Level agreement with the International Monetary Fund, the timeline for funding is set to approach all the external creditors and start negotiating in good faith to obtain relief on the payments.

"For that, we need what is called Financial Assurance from our external creditors. Within the next three to four months, if all goes well and if all external creditors are cooperating with the Sri Lankan government's debt management strategy, we hope to get financial assurance somewhere in December. Then the IMF can submit our paper to the executive board so that they can start disbursing the Extended Fund Facility towards the end of this year," said the Governor from Colombo.

He said this timeline from the Sri Lankan side depends on the support extended by the External Creditors.

The Governor said Sri Lanka has NOT officially approached creditors yet, as it awaits an agreement on debt targets at the Staff-Level agreement with the IMF.

"Thereafter, we will be reaching out formally, and in between, we have been providing data, and information with all our creditors for them to be able to facilitate the process," he said adding official approaches will be made probably in September.

He also said that the Central Bank of Sri Lanka is discussing with each bank in the island nation if there is a need to recapitalize, and what kind of support would they need.

The Central Bank Governor said that the Interim Budget that will be presented in September will have measures to further strengthen fiscal consolidation, and for 2023 another budget will be presented to the Parliament on stronger policy measures in November.

He added that both budgets will have policies on structural reforms relating to state-owned enterprises.

He said the situation on Foreign Exchange is easing, and without any bridging financing, Sri Lanka can manage the procurement of essential imports, with higher exports and curtailing other imports.

Speaking further he also said that inflation in the island nation is trending down.

"We have seen some of the improvements in terms of inflation expectations and future inflation paths. Earlier we thought inflation would go above 70% and remain at that elevated level until December. But the latest projection we are seeing is basically trending down," said the Governor from Colombo.

However, the Central Bank Governor said that when going forwards CBSL will be monitoring the situation, and the supplies and demand aspects.

"There is no shortage in the availability of essential items," he said adding that the demand for goods is also contracting that expected.

On the International Monetary Fund, the Governor said the first task is to reach a Staff-Level agreement on the overall macro & fiscal policy framework for the next three to four years, and the medium-term framework.

"We are coming closer to reaching an agreement on the macro & fiscal policy framework," he said.

He said the second task with the IMF is to agree and negotiate the debt targets, for Sri Lanka to make its debt in the medium and long terms more sustainable. 

"We are in the process of having this discussion, and only after that will we approach the creditors," he said.

The Governor of the Central Bank of Sri Lanka said only external debt would be restructured, and will not touch domestic debt as it would have a significant impact on the country's banking sector.