Bloomberg : IMF to Work With Leftist Sri Lanka Leader on $3 Billion Loan

IMF to Work With Leftist Sri Lanka Leader on $3 Billion Loan

Katia Dmitrieva and Eric Martin

Tue, September 24, 2024

(Bloomberg) -- The International Monetary Fund said it’s looking forward to working with Sri Lanka’s newly elected leftist president, including on the latest review of the country’s $3 billion bailout package.

“We will discuss the timing of the third review of the IMF-supported program with the new administration as soon as practicable,” the organization said in a statement after President Anura Kumara Dissanayake was sworn into office on Monday.

“We look forward to working together with President Dissanayake and his team towards building on the hard-won gains that have helped put Sri Lanka on a path to economic recovery since entering one of its worst economic crises in 2022,” the IMF added.

Dissanayake had campaigned on a promise to reopen negotiations with the IMF on the country’s big loan program. It came with deeply unpopular tax hikes and spending cuts that made the cost-of-living crisis a top issue for voters.

Reviewing the debt plan, though, risks delaying additional loans from the international organization. Sri Lanka needs to meet certain fiscal criteria before the next round of funding is released.

Sri Lanka’s dollar bonds were steady on Tuesday, regaining losses made following Dissanayake’s win at the polls. The bond maturing in March 2029 edged higher to trade at 51.485 cents to the dollar, after falling by the most in over two years on Monday.

The country’s former president, Ranil Wickremesinghe, brokered the deal with the IMF and said upending it would be a costly mistake for the economy. Prior to the cash injection, the country faced an unprecedented economic crisis where spiraling inflation wiped out household savings and ignited protests.

Investors hope that Dissanayake will stick with the loan plan. Rizvie Salih, an executive committee member of the president’s coalition party, said Saturday that the country will remain with the program but seek modifications.

In its statement, the IMF said the recent agreement with bondholders “represents significant progress in Sri Lanka’s debt restructuring process,” adding that it’s still “subject to confirmation on comparability of treatment by Sri Lanka’s Official Creditors Committee.”

--With assistance from Malavika Kaur Makol.

Sri Lankan Bonds Slide as Election Result Puts IMF Loan at Risk

Malavika Kaur Makol and Ashutosh Joshi

Mon, September 23, 2024

Sri Lankan Bonds Slide as Election Result Puts IMF Loan at Risk

(Bloomberg) -- Sri Lanka’s dollar bonds slid as leftist candidate Anura Kumara Dissanayake’s victory at the presidential election put the nation’s bailout by the International Monetary Fund and debt deals at peril.

Bonds maturing in March 2029 declined 3.1 cents, the biggest drop in about two years, to 50.2 cents on the dollar on Monday. The S&P Sri Lanka 20 Index of blue-chip stocks reversed intraday losses to trade 2.2% higher. The rupee gained as Dissanayake said the island nation needs international support and his government will work with all.

He had earlier vowed to reopen negotiations with the IMF over its $3 billion bailout, which comes with spending cuts and tax hikes that proved deeply unpopular with voters.

“A Dissanayake win is the worst possible outcome for Sri Lanka’s bonds,” Tellimer strategists Hasnain Malik and Patrick Curran wrote in a note Sunday.

Sri Lanka’s 2029 dollar notes are set for a nearly 15% slide this quarter, a spectacular turnaround after handing investors a return of close to 70% last year, one of the best in emerging markets.

It raises question marks not only for the IMF program but also whether a new administration would honor the agreement reached with creditors, with a risk that Dissanayake will compel creditors back to the negotiating table, they wrote.

“It’s pretty crucial that Sri Lanka sticks broadly to the reform part with respect to the IMF program and we expect the new president elect and his party to broadly stay in line with the program,” Dilshan Wirasekara, chairman of the Colombo Stock Exchange said in an interview with Bloomberg Television.

“I don’t think we run a risk of cancellation of the program,” Wirasekara said adding that only a few parameters of the debt recast deal with IMF could be renegotiated.

The country last week reached an agreement in principle with bondholders to restructure about $12.6 billion in debt. Some members of Dissanayake’s National People’s Power coalition had opposed the debt restructuring terms.

Stocks have mostly factored in the outcome of the presidential election, said Navin Ratnayake, head of research at Colombo-based John Keells Stock Brokers. Market sentiment will depend on the new government’s actions in relation to the economy and debt negotiations, he said⍐.