By Imsha Iqbal
The process of debt restructuring is expected to take six to seven months, stated Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe.
He made this statement yesterday (23) during a discussion titled “State of the Economy and Talks with the International Monetary Fund (IMF)”.
During his speech at the event, organised by the Sri Lanka Press Institute (SLPI), he elaborated that during this period of debt restructuring, he expects Sri Lanka to face challenges due to the depleting reserves.
“The challenge that we are facing here is over how we can live until the debt is restructured, as Sri Lanka has a very small amount of reserves, but that is not sufficient. This is where the economy will go through a contraction risk.”
Dr. Weerasighe stressed that this contraction risk that the country would go through would take place at the “highest rate”, even while the country does not have the freedom to import whatever it wants besides essentials.
He also predicted that inflation might increase at the rate of 30-40%, while the poor and the vulnerable will be severely affected unless the Government of Sri Lanka is able to support them.
The World Bank (WB) and other financial institutions would step in aiding low income-earners by providing some relief through the intervention of the Government and the Central Bank.
He noted that during this said period of time, the CBSL looks forward to appointing legal and financial advisors as well as negotiating with creditors in the debt restructuring that the country is working towards, while implementing the necessary policy measures.
Regarding this delay in the appointment of the legal and financial advisors, former Finance Minister Ali Sabry had stated during a Parliament session last Wednesday (18) that the country has finalised its Request For Proposals (RFPs) for the appointment of debt restructuring advisors to aid the ailing economy after a recent default. However, the final approval lies with the Cabinet of Ministers to finalise the appointment.
“The RFPs are finalised. A Steering Committee and a Technical Committee have been appointed. However, the authority that appoints debt advisors is the Cabinet; we still do not have a complete Cabinet, and therefore, the Cabinet was not able to hold a meeting,” Sabri stated.
In April, a delegation from Sri Lanka and the IMF team conducted technical discussions on the authorities’ request for an IMF-supported programme. Those discussions covered economic and financial developments in the country regarding implementing a coherent strategy to restore macroeconomic stability.