(Bloomberg) -- Sri Lanka’s new president held his first meetings with officials from the International Monetary Fund since taking office and initiated steps to move forward with the nation’s debt restructuring.
President Anura Kumara Dissanayake, the leftist leader who swept the South Asian nation’s elections two weeks ago, said he remains committed to the overall objectives of the IMF’s $3 billion loan program, but added they should be achieved “through alternative means that relieves the burden of the people,” according to an official statement on Thursday. He held meetings with the IMF team, led by Krishna Srinivasan, director of the Asia Pacific Department, for a second day on Friday.
The government wants to help citizens struggling under high value-added taxes and income taxes, Dissanayake said, following through on a campaign promise to provide relief from austerity measures negotiated by his predecessor in order to secure the IMF bailout last year.
Sri Lanka’s finance ministry said on Friday that Citigroup Global Markets had been appointed as the dealer manager for the nation’s sovereign bond exchange. The country has been negotiating with the bondholders to exchange existing instruments with new securities. The government intends to launch the process at the earliest with a view to concluding Sri Lanka’s debt restructuring, it said.
Investors have been worried the president’s move to renegotiate some of the conditions of the loan may delay funding from the IMF. The nation’s dollar bonds have turned volatile in the past month, with notes maturing in 2030 sinking to as low as 50.3 cents on the dollar, the lowest since February, before rebounding to 57 cents on the dollar, according to indicative pricing compiled by Bloomberg.
The IMF has said it’s open to negotiate with the new government over other means of reaching targets. Julie Kozack, the agency’s chief spokeswoman, said in a briefing in Washington on Thursday that Sri Lanka’s performance under the loan program had been strong and reform efforts were bearing fruit.
“However, as we have said before, important vulnerabilities and uncertainties do remain, and this means that sustaining reform momentum is critical,” Kozack said.
The IMF needs to conduct a third review of the loan program before it disburses the next tranche of funds, estimated at about $350 million. Kozack said dates for the third review will be announced in due course.
Sri Lanka’s new administration had said it plans to hold “structural” discussions on the nation’s IMF program and the debt restructuring agreement reached between the previous government and bondholders later this month in the U.S.
Dissanayake was elected president of the island nation after its first-ever runoff election on a campaign promising clean governance and easing the burden of the IMF program on ordinary citizens. The lending program provides a series of funding tranches in exchange for hitting fiscal, debt and governance targets, which the previous government sought to meet through unpopular measures including higher taxes and cuts to some subsidies.
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