The International Monetary Fund (IMF) could hold back the next tranche of funding for Sri Lanka under the Extended Fund Facility (EFF) if the government fails to show good faith and hold constructive talks with private creditors.
Sources told that while the Government has been having extensive talks with bilateral creditors, including China, similar discissions have not been held with the private creditors.
“The size of private creditors is very significant and Sri Lanka cannot rely only on IMF or China money,” sources said.
Senior Mission Chief of the International Monetary Fund (IMF) Peter Breuer had said recently that the IMF anticipates that Sri Lanka will secure an agreement with its commercial creditors, including bondholders and the China Development Bank, ahead of the next review.
Sources said that the private creditor will do “everything they can” to block the next IMF review and tranche for Sri Lanka if the Government does not actively engage with them.
“The private creditors believe it is the only way to get the Sri Lankan authorities to talk to them,” sources told.
Sources said there is dissatisfaction at Sri Lanka’s approach towards private creditors, and that Sri Lanka’s credibility with international capital markets will “disintegrate”.
One source noted that Sri Lanka has debt obligations that are under contract and are in default and so litigation cannot be ruled out.
The source noted that private creditors have been “too polite” in the process to give Sri Lanka plenty of space for good faith engagement but if there is no such engagement then other alternatives will need to be looked at.
“Everybody started the process hopeful that the new President (Ranil Wickremesinghe) could do things better than the previous regime. There was so much hope but now it is turning into so much disappointment,” sources said.
The private creditors fear that Sri Lanka is moving at a very slow pace in dealing with private creditors owing to domestic politics and the upcoming elections.
“Maybe the President does not want to strike a deal with private creditors out of fear of being criticized,” sources said.
State Minister of Finance Shehan Semasinghe said that Government advisors are working closely with the advisors of bond holders.
He said that Sri Lanka wants to finalise the debt resolution as early as possible which will be beneficial to all creditors, including the bond holders and commercial creditors.
“Bond holders are very important to us,” the State Minister said.
He said the Government will ensure that communications are expedited in Sri Lanka’s end, if there is a delay.