Verité Research Debt Update - March 2023

Abstract

This issue provides coverage and analysis on the usability of the IMF financing and the volatility of the exchange rate. These are the key developments identified; 1) Sri Lanka is expected to reach board level agreement for an Extended Fund Facility (EFF) with the IMF on 20th March 2023, exactly 200 days after reaching staff level agreement; 2) The EFF will provide 2.9 billion USD in foreign currency reserves support for a period of about four years. It is not budget support; so, it cannot be used for government expenditure, as often assumed in media reporting; 3) Despite suspending international debt repayment, Sri Lanka’s total debt continues to increase as payments that are due, accrue as arrears and local currency debt to finance government expenditure increases; 4) By December of 2022, the total outstanding public debt had increased to USD 84 billion (128% of GDP), an increase from USD 80 billion (121% of GDP) as of June 2022; and 5) Sri Lanka suffered severe currency volatility with a sudden depreciation in March 2022, and the currency volatility was adversely impacted by the sudden appreciation of the currency in March 2023.