Sri Lanka strikes loan pact with IMF: Sources

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Sri Lanka and the International Monetary Fund (IMF) have reached a preliminary agreement on an emergency loan to the crisis-hit country and a formal announcement will be made on Thursday, four sources with direct knowledge of the matter said.

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The debt-laden island nation had sought up to $3 billion from the global lender as it struggles with its worst economic crisis in more than seven decades. Sri Lankans have faced acute shortages of basic goods and sky-high prices for months.

The sources, who declined to be named ahead of an official announcement, did not say how much money Sri Lanka might get.

The IMF said a visiting team that arrived a week ago had extended its stay by a day and would address a news conference at the central bank on Thursday morning.

“The IMF Mission in Colombo has been extended by one day because discussions are still ongoing with the authorities,” it said in a statement.

Spokespersons for the Sri Lankan government did not respond to requests for comment.

Presenting an interim budget for the rest of the year, Sri Lankan President Ranil Wickremesinghe told parliament on Tuesday that talks with the IMF had reached the “final stage.”

Staff-level agreements are typically subject to the approval of the IMF management and its executive board, after which the recipient nations get access to funds.

The IMF team held talks with Sri Lankan government officials, including the treasury secretary, late into the night on Tuesday to address concerns on the political front, the sources said. Most of the technical details had been agreed to
beforehand.

Sri Lankan shares jumped 2.6 percent on news of the preliminary loan pact, their best session since August 12. August has been the best month for the shares since January last year.

Sri Lanka sovereign bond prices rose 3.7 cents on the dollar. The country's notes maturing in 2026 and 2028, which are trading at distress levels, are leading the latest gains.

Looks to restructure debt

The country of 22 million was plunged into political crisis last month when then-president Gotabaya Rajapaksa fled after a popular uprising against the economic hardship.

Rajapaksa was replaced by six-time prime minister Wickremesinghe, who also heads the finance department and held several rounds of talks with the IMF team.

The country is also trying to restructure its debt of about $29 billion, with Japan expected to lead talks with other main creditors such as China. Sri Lanka also plans to soon reach out to private creditors that hold the majority of its $19 billion
sovereign bonds to start restructuring talks.

Sri Lanka missed interest payments on bonds due on June 3, June 28, and July 18, and a principal payment due on July 25, according to rating agency S&P Global.

The COVID-19 pandemic disrupted Sri Lanka’s tourism-reliant economy and slashed remittances from workers overseas.

The damage was compounded by rising oil prices, populist tax cuts and a seven-month ban last year on imports of chemical fertilizers that devastated agriculture.

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