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COLOMBO: Sri Lanka’s planned foreign debt restructure after an unprecedented economic crisis has been delayed by “procedural issues” in negotiations with bilateral creditors including China, the International Monetary Fund said Friday.

The Washington-based lender of last resort this week gave Sri Lanka the latest tranche of a rescue package designed to help repair the island nation’s ruined finances after a 2022 government default.

President Ranil Wickremesinghe had originally promised the restructure would be finalised before the latest $336 million disbursal, but discussions with creditors have yet to yield a deal.

“There is agreement on the substance of the financial and legal terms,” IMF Sri Lanka mission chief Peter Breuer told reporters in Colombo.

“It is procedural issues that need to be resolved, and we anticipate that this will happen very soon.”

Sri Lanka defaulted on its $46 billion external debt in April 2022 after the country ran out of foreign exchange to finance even essential imports such as food, fuel and medicine.

Months of protests forced then president Gotabaya Rajapaksa to step down after being accused of mismanaging the island nation into its worst-ever economic crisis.

His successor Wickremesinghe has since hiked taxes and drastically cut consumer subsidies in an effort to repair the government’s balance sheet.

IMF approves second review of Sri Lanka’s $2.9bn bailout, warns of economic risks

Sri Lanka is due to hold a presidential election later this year and opposition parties have vowed to renegotiate the terms of the $2.9 billion IMF bailout loan.

Breuer said the IMF was willing to listen to alternative proposals from rival political parties but said it was necessary to stick with the benchmarks set in the bailout deal.

“Sri Lanka has made good progress in terms of getting the recovery going, but the country really isn’t out of the woods yet,” he said.

“We are willing to listen to different views how these program objectives can be reached. These need to be realistic and achievable within the timeframe of the programme.”

China is Sri Lanka’s largest single bilateral lender and holds around 10 percent of the island’s total foreign debt.

Beijing had agreed “in principle” to restructure its share of Sri Lanka’s debt in December, but neither side gave further details of the agreement and have yet to strike a formal deal.

Sri Lanka’s annual debt servicing is officially estimated at $6 billion with external debt, including government guaranteed borrowings, at $41.5 billion at the end of 2023, according to treasury data.

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