Verite Research Debt Update - February 2023

Abstract

This issue provides coverage and analysis on the financial assurance letters issued by China, India, The Paris Club and a group of private bond holders to the IMF on their commitment to support Sri Lanka’s debt restructuring efforts. These are the key developments identified; 1) The communications are adequate for Sri Lanka to meet the technical criteria for IMF Board approval for the External Fund Facility (“EFF”) of $2.9 billion, which achieved a staff-level agreement in September 2022; 2)The Paris Club statement requested that any restructuring agreement treats all bilateral creditors equally, and on terms at least as favorable as all commercial creditors; 3)The statement and letter respectively, from Paris Club and India supported the paths and targets agreed upon with the IMF, but did not express any commitment to specific short-term measures; 4) The letter from China committed to specific short-term debt relief measures, but it did not express confidence that Sri Lanka will achieve the projected long-term path of debt or the macro-fiscal targets for debt sustainability agreed upon with the IMF; 5) China and Bondholders (the “Bondholder Group”) expressed concerns regarding the IMF’s targets and projections and requested greater involvement and transparency in the analyses and formulation of those targets; 6) The Bondholder letter introduced new negotiating positions that pressed for constraints beyond those agreed upon with the IMF (see further analysis section for more details)