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IMF: Sri Lanka faces a “clear solvency problem”

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Sri Lanka faces “solvency problems” due to risks stemming from unsustainable debt levels, which put the country’s economy at risk, according to the International Monetary Fund.
According to the “Bloomberg” news agency, the International Monetary Fund said in its advisory report on Article 4, which was released in Washington on Friday (local time): “Based on the agency’s analysis, the necessary fiscal consolidation to reduce debt to safe levels will require extensive adjustment in the coming years, indicating a clear solvency problem.

The full report provides a more detailed analysis of the debt and financing of Sri Lanka, which is located in South Asia.

A summary of the report released earlier this month says Sri Lanka faces unsustainable debt levels and needs a “credible and coherent” strategy to restore stability.

The report said the country’s “debt burden,” coupled with persistent fiscal and balance-of-payments deficits, “will constrain growth and threaten macroeconomic stability in the short and medium term.”

The International Monetary Fund said: “The risks of the extension are very high… The payment of a debt in foreign currency that amounts to 7,000 million dollars annually will require the realization of very large amounts of external financing at concessional rates and with maturities prolonged, lasting for many years.

Since the International Monetary Fund board reviewed the experts’ report in late February, high oil prices and a drop in tourists due to the war in Ukraine have exacerbated the currency crisis, forcing the government of President Gotabaya Rajapaksa to seek help from the IMF.

The escalation of the crisis in the country has also led to raising interest rates, devaluing the local currency and limiting non-essential imports.

Sri Lanka has about $2 billion in foreign exchange reserves, compared with $3.9 billion in foreign currency debt due for the rest of 2022, according to calculations by Bloomberg, which are based on central bank data.

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