Transcript

Transcript of IMF Press Briefing in Sri Lanka

May 16, 2023

Speakers:

• Krishna Srinivasan, Director of Asia and Pacific Department, IMF

• Peter Breuer, Senior Mission Chief for Sri Lanka, Asia and Pacific Department, IMF

• Sarwat Jahan, IMF Resident Representative in Sri Lanka

Moderator:

• Ting Yan, Senior Press Officer, Communications Department, IMF

MS. YAN: Good afternoon, everyone. Welcome to this IMF Press Briefing on Sri Lanka. My name is Ting Yan, Senior Press Officer at the IMF. It's great to be back in Colombo and see everyone here in person. Joining me today are our three speakers from the Asia and Pacific Department at the IMF. We have Krishna Srinivasan, Director of the Asia and Pacific Department, Peter Breuer, Senior Mission Chief for Sri Lanka, as well as Sarwat Jahan, our Resident Representative here in Sri Lanka.

Today, Krishna will start with some opening remarks, and then we will be happy to take your questions. With that, Krishna, the floor is yours.

MR. SRINIVASAN: Thank you, Ting. Good afternoon, everyone. Thank you for joining us for this press briefing. It's lovely to see you all in person. I'm here in Colombo. My first visit to Sri Lanka to further strengthen the IMF's engagement with a broad spectrum of stakeholders in the country. In addition to meeting with the president and top leadership of the country, I've been able to engage with members of the opposition, civil society organizations, trade unions, think tanks, and other stakeholders. And IMF Staff team led by Peter Breuer is also currently in Sri Lanka and will be here until May 23rd for regular consultations ahead of the first review mission later this year. The team will communicate further with you at the end of its visit.

To put things in perspective, before I talk about Sri Lanka, let me offer a few thoughts on a global and regional outlook. 2023 looks to be a challenging year for the global economy. Global growth is expected to decelerate and bottom out in 2023 as rising interest rates and Russia's war in Ukraine weigh on economic activity. Global inflation is easing, but remains stubbornly high, and banking strains in the U.S. and Europe have injected greater uncertainty into an already complex landscape.

Against this uncertain global backdrop, Asia Pacific remains a dynamic region despite weakening external demand and not protecting across major economies around the world. Domestic demand has so far remained strong. Growth in Asia and the Pacific is projected to increase this year to 4.6 percent up from 3.8 percent in 2022. As a result, the region would contribute around 70 percent of global growth.

Asia's dynamism will be driven primarily by the recovery in China and resilient growth in India. While growth in the rest of Asia is expected to bottom out in 2023 in line with other regions. This dynamic outlook, however, does not imply that policymakers in the region can afford to be complacent. Headline inflation has been easing, but remains about target in most countries. While code inflation has proven to be sticky. All those pillars from tomorrow in Europe and U.S. banking sectors have been limited thus far. Vulnerabilities to global financial tightening and volatile market conditions, especially the corporate and household sectors remain elevated. Growth in the region is expected to fall to 3.9 percent five years out. The lowest medium term forecast in recent history reflecting a combination of factors including an aging population, falling productivity and scarring from the pandemic.

Risks for the outlook are to the downside, going to the possibility of stickier global and regional price pressures. The disconnect between market views regarding the monetary policy path of advanced economies, and what has been communicated by the central banks. The possibility of additional turmoil in global financial markets, adverse spillovers to the region from China's medium-term growth slowdown and deeper geo-economic fragmentation.

So, what does this mean for Sri Lanka? Well, Sri Lanka, as you know, has been facing a severe crisis because of past policy missteps and back-to-back economic shocks. We have been deeply concerned about the impact of the crisis on the Sri Lankan people, particularly the poor and vulnerable groups, and about the economic cause of the delay in the country's access to domestic to external financing.

On March 20, the IMF Executive Board approved a 48-month Extended Fund Facility of about 3 billion U.S. dollars to support Sri Lanka's economic policies and reforms. This marked an important step towards the resolution of the crisis. Sri Lanka immediately received an initial disbursement of about $330 from the EFF arrangement, which is expected to catalyze new external financial including from the Asian Development Bank and the World Bank. Given a weak external environment and domestic policy tightening, aimed at restoring macroeconomic stability, the economy is expected to contract by 3 percent in 2023, before registering a modest growth of 1.5 percent in 2024. Prospects hinge quite critically on the implementation of the economic reform program.

As you know well by now, the reform program supported under the EFF arrangement is built on strong policy measures and prioritizes five key pillars. First, an ambitious revenue based fiscal consolidation, which is accompanied by stronger social safety nets, fiscal institutional reforms and cost recovery-based energy pricing to ensure the state's ability to support all its existential expenditures.

Second, restoration of public debt sustainability, including through a debt restructuring to ensure stable financing of the Government's operations. Third, a multi-pronged strategy to restore price stability and rebel reserves under greater exchange rate flexibility to alleviate the burden of inflation, particularly on the poor, and to foster environment of investment and growth, and to ensure Sri Lanka's ability to purchase essential goods from abroad.

Fourth, policies to safeguard financial sector stability to ensure that the financial sector can play its key role in supporting economic growth. And fifth, structural reforms will address corruption, vulnerabilities and enhanced growth.

Anti-corruption and governance reforms are imperative to ensure the hard one gains from the reforms benefit the Sri Lankan people. Sri Lanka is the first country in Asia that has undergone the IMF Governance Diagnostic Exercise. The IMF Governance Diagnostic Report is expected to be published by September this year. The mission visited Colombo in March and engaged closely with stakeholders and civil society organizations on this critical reform area. We look forward to further discussion with them on this issue.

Commendably, Sri Lanka has already started implementing many of the challenging policy action in these areas. It is now essential to continue the reform momentum on the strong ownership of the authorities and the Sri Lanka people more broadly. Economic impact or reforms on the poor and vulnerable needs to be mitigated with appropriate measures. In this regard, we welcome the authorities' firm commitment to strengthen social safety nets, including through a minimum spending floor, while targeted spending through the new social registry and establishment of objective eligibility criteria.

Let me conclude by saying that the IMF supported program is an opportunity for all Sri Lankans to come together to work through this crisis, to restore economic stability and put the country on a sustainable growth path. The key is implementation. The IMF is here to help you along the way. With that, I'll stop and happy to answer questions. Thank you.

MS. YAN: Thank you, Krishna. We will post this opening remarks on IMF.org in English, Sinhala and Tamil afterwards. Now, we are open for questions. Please if you have any questions, raise your hands and identify yourself with your name, media organization and try to be brief. Here. Second, please wait for the mic.

QUESTIONER: I’m from Daily News. Just to check on the interest rate for this loan and is it same across all the other countries, the interest rate that you all are giving?

MR. SRINIVASAN: So, the IMF has various facilities, all of which carry the same interest rate. I mean, sorry, the interest across the facility. But when a program and the country gets a program for a particular facility, that interest is the same. So, the EFF carries the interest rate, which is there in a staff report.

QUESTIONER: And the amount?

MR. SRINIVASAN: The amount is about $3 billion in the program. It's a four-year program of 3 billion, right. And the first installment was 330 million.

QUESTIONER: Interest rate?

MR. SRINIVASAN: Oh, interest rate. What's interest rate?

MR. BREUER: Yeah, so it's actually a floating interest rate. So, it depends on how global interest rates evolve. And so we can only make projections based on overall projections. So, we've estimated that over the lifetime of the loan for four years until 2000, sorry, until the repayment is taking place all the way up to 2037, it would average out to about 5 percent.

MR. SRINIVASAN: And just to make the correction, the Fund facility is a 48-month EFF for about 3 billion U.S. dollars. The first tranche was 330 million U.S. dollars. I should take a few questions.

QUESTIONER: I’m from EconomyNext. How do you see the progress of both local and external debt structuring in terms of negotiation and the talks taking place? Is it in line with IMF timeframe?

MS. YAN: Let’s take one more, here.

QUESTIONER: I’m from the Daily Mirror. Two questions, how satisfied are you with the current reform process that is happening in Sri Lanka? And number two is, in case of domestic debt structuring, what kind of a role IMF can play when it comes to recapitalizing the banks?

MS. YAN: Thank you.

MR. SRINIVASAN: So, what I can tell you is that the authorities are making good faith efforts to negotiate with all the creditors, both private creditors and official creditors. And the engagement is going on quite well. In terms of the timeline, it's expectation that the restructuring exercise will be completed by the first review of the program, which is in September or October of this year.

In terms of -- your second question was on domestic debt restructuring. Just to be very clear, the IMF's role in any debt restructuring says like this in the context of a program, we define the macro framework, the debt targets, and so on so forth. We don't get involved, per se, in any of the debt research and negotiations defining the perimeter of debt and so on and so forth. That said, any kind of restructuring will need to keep into account to make sure that the financial stability is assured.

MS. YAN: There is a question, I think, how satisfied are you with the reforms?

MR. SRINIVASAN: So, again, Peter and his team are here to assess progress under the program, and they'll be here until May 23rd. At that point, they will be able to provide a more comprehensive assessment of the progress with the reform agenda so far.

QUESTIONER: I’m Uditha from Reuters. Now, Sri Lanka has this sort of self-imposed deadline about completing its debt restructuring framework by September, October. What happens if that deadline is passed? Will the review process continue? Will the next tranche be released? And what are your key concerns moving forward in this process? What are you concerned about in terms of where Sri Lanka might fall in terms of the goal posts that we have over the next few months, please? Thank you.

MR. SRINIVASAN: So, again, I won't get into hypotheticals here. The expectation is that the restructuring is completed by the time the first review, which is in September, October. And to that end, the Government is making good faith efforts and negotiating with all creditors, private and official creditors.

QUESTIONER: What is your plan (inaudible) what if things don’t' progress as expected until September, October?

MR. SRINIVASAN: Well, again, we shouldn’t think about hypothetical at this point, right, because the Government is making efforts, should not be second guessing their efforts. Also, as you may have seen, three countries India, Japan, and the Paris Club team together to form a credit committee. And China decided to be observer to this group. So, that's a process development.

Similarly, the country authorities have been negotiating in good faith with their private creditor. So, I think they are making progress. So, let's not second guess the efforts.

MR. BREUER: Maybe if I can just add also, as you know, there was a long period that over which the financing assurances were being negotiated, but they were obtained. And that is a really good sign that creditors are also committed to the restructuring process you know, to help Sri Lanka reach that important milestone of restoring debt sustainability so that the IMF lending can continue.

QUESTIONER: Mr. Srinivasan, could you comment on your talks with the trade unions please? Given that there has been some resistance to the tax reforms.

MR. SRINIVASAN: Could you just repeat the question, but --

QUESTIONER: If you could just comment on your talks with the trade unions in light of the fact that there's been some resistance to, well, the tax act recently.

MR. SRINIVASAN: So, let me not just tell you about discussion with trade unions. Like I said, I met with a variety of stakeholders, which includes trade unions. Again, there are difference of views in terms of the reform priorities, the pace of reforms, and so on and so forth. But I would say that there is a broader recognition that the country was crisis, ambitious reforms were needed, are needed, and that they should be pursued in a way, in a comprehensive way. But again, there are difference of views in terms of certain priority areas and the pace of reforms in certain. So -- but that's to be expected, right. You have various stakeholders and they'll have different views. That's to be expected.

QUESTIONER: The Government has fallen short of its revenue targets. Isn't this a concern?

MR. BREUER: So, that's the purpose of our visit here, that we are engaging with the Government to update our knowledge, find out what is the state of affairs, and to the extent that any corrective action is needed, we will discuss it with them. Again, there may be many things going on, some things that are under control of the Government, and other things that are not. And so, as Krishna said this is really something that we will only be able to speak more about towards the end of our visit here. Thank you.

MS. YAN: Okay. We have a question here.

QUESTIONER: Given the date information you have now on the economic performance, would you be updating your macro framework now? Because I think it had done last year and also from your what we have seen so far, what is your general view of the progress?

MR. SRINIVASAN: Sorry, what's the last question?

QUESTIONER: From what you have seen so far, what's your general view of the progress being made here in terms of quantitative targets and also structural benchmarks, so the progress we are making?

MR. SRINIVASAN: So, our macro framework is a dynamic exercise. So, we keep updating that and we will be updating that and part of Peter's work during the mission will be to update a macro framework. In terms of progress with reforms and so on, we need to recognize the fact that before the program was tabled for discussion by the Executive Board of the IMF, there were certain prior actions and all those prior actions were met by the authorities, which indicates a commitment to the reform effort. And beyond that, the progress will be evaluated by Peter during the mission in the next 10 days or so.

MR. BREUER: If I just can add on the macro framework. So, yes, of course, as Krishna said, we will be looking at whether our macro framework is still appropriate or whether there have been such substantial changes that it requires revisions. At the moment, we sort of see things developing more or less in line with expectations. So, this is again, something that we will decide towards the end of the mission to what extent revisions are needed to the macro framework that you have seen. Thank you.

QUESTIONER: A couple of questions to Mr. Srinivasan. This is Meera from the Hindu. So, earlier this month, the creditor committee met, and you made reference to that in your initial remarks. And they stressed the importance of private creditors and other bilateral creditors to provide debt treatment on terms at least as favorable as those agreed to by the creditor committee.

Now, when it comes to official creditors, there seems to be more clarity because the Government is periodically telling us about their discussions with China, India, Japan, and others. But with private creditors, it's still ambiguous because we are not privy to the discussions or the outcome through official statements. So, could you tell us how private creditors can be expected to play a role in ensuring that their terms are as favorable as those agreed to by the creditor committee?

My second question is in regard to the Governance Diagnostic Exercise. Since it's the first in Asia, could you take us through what it entails? Because for those of us outside this process, the Government in power is still the Government that was there when the crisis was caused, right, who are accused of large-scale corruption. So, what does this Governance Diagnosis Exercise entail, and how are you going about it?

MR. BREUR: Thanks for the question, Mira. So, in terms of the debt treatment, again, the authorities have affirmed their commitment to have a uniformity of treatment. And how that is defined, how it is enforced will be something which the creditors will be having the dialogue with the sovereign, which is in this case, Sri Lanka.

In terms of the progress with official creditors, what we know is that Japan, India, and the Paris Club together, Japan's part of the Paris Club, have formed a creditor committee to discuss restructuring and so on. And China will be an observer. So, that's what we know in terms of the creditor committee being formed, who is part of it and so on. Similar with the private creators, the authorities have been engaging through their financial legal advisors on restructuring strategies. And our role in all of this is to just to ensure, or to make sure that any kind of agreement before it's reach is consistent with restoring debt sustainability. That is our role. We don't get involved in defining the perimeter of the debt, the terms of restructuring, who's in, who's out, and so on and so forth.

And you had a second question, or what's the second question?

QUESTIONER: Governance diagnostic.

MR. BREUER: Ah, sorry. Yeah. So, the Governance Diagnostic is something which we have done for a few countries. And like you said, Sri Lanka is the first one in Asia. And this was done at the request of the authorities. And The Governance Diagnostic Exercise will identify key governance weaknesses and corruption vulnerabilities that are macroeconomically critical. And it'll be across six key areas. The six key areas include fiscal governance, financial sector oversight, central bank governance, market regulations, rule of law, and AML/CFT. You know what AML/CFT is, right? It'll also assess the adequacy of the anti-corruption framework and policies. So, that is the scope and focus of the Governance Diagnostic. It will be completed, or the report will be done by September. And it will lay out recommendations on what can be done to improve the governance framework and reduce corruption in the country. And that will be factored into our program going forward.

QUESTIONER: Good evening, I’m from News First. Talking in terms of domestic debt optimization, we saw the Central Bank presenting a presentation on the matter as well. However, there seems to be a sense of ambiguity when it comes to domestic debt restructuring. What is the IMF stake on this matter?

MR. SRINIVASAN: Want to take that, Peter?

MR. BREUER: Yeah, sure. So, as Krishna pointed out, our role is to ensure that whatever debt restructuring strategy the authorities decide on is consistent with the debt targets that are designed for Sri Lanka to restore debt sustainability. So, as such, we don't have any particular view on how the burden should be distributed across creditors, whether they're external or domestic. Having said that, we do have a keen interest to ensure that the domestic economy and the domestic financial stability, financial system continue to work and are stable. So, those are the aspects that we would focus on that in the discussions.

Now, we have taken note that this uncertainty that you refer to has elevated interest rates in the country. And so, we are encouraging the authorities to come up with a strategy soon so that this uncertainty can be resolved. The interest rates can come down and this can be part of a virtuous cycle to restore stability.

QUESTIONER: Just to add on to that question, there has also been rumors about superannuation funds and pension funds also being affected if domestic debt optimization is to go ahead. Is there anything you would like to add on that as well?

MR. BREUER: No, as I said, it's up to the authorities to decide how to distribute the burden of debt relief across all these different creditors. Yeah.

MS. YAN: Okay. Do we have more questions in the room?

QUESTIONER: What is your initial view on the banking system stability now from the information you now have, is there something we need to do? Is it kind of going okay?

MS. YAN: Krishna?

MR. SRINIVASAN: Yeah, sure. So, the authorities are engaged in their surveillance exercise over the financial system to look at the quality of the assets that the banks have, and what implications this has in terms of capitalization levels. So, that's work that's ongoing. And this is part of the discussions we are having. But we are sought comfort from what we've seen so far in terms of financial sector stability in Sri Lanka at the moment.

QUESTIONER: So, far in the program, what are your key concerns as of now?

MR. SRINIVASAN: Again, as mentioned, this is what Peter's here until the 23rd of May. We've just had initial discussions on various aspects of the program in terms of the fiscal -- how they've delivered in fiscal, how the buildup reserves and so on. So, it's early days for us on that diagnostic. And by May 23rd, the mission will finish, and they can give you an update there at that point in time.

QUESTIONER: I’m from Daily FT. When we signed the agreement, was this mission planned or was it because we were expecting somewhere in June or later, but we are in May. Was this sort of planned one, or it's one scheduled?

MR. SRINIVASAN: So, this was very much a scheduled mission. So, we, in fact, at the IMF programs generally have quarterly targets. Some programs are quarterly targets, but when we have six monthly targets, but before that, we do a staff visit, and that's just to monitor the progress with the program implementation. So, it's pretty much a scheduled mission.

QUESTIONER: Are you concerned about the existing brain drain scenarios caused of new taxation policies?

MR. SRINIVASAN: Maybe Sarwat will answer that question.

MS. JAHAN: Thank you for that question. Yes. I mean, brain drain has been a serious concern, especially for Sri Lanka. We learned that last year, over 300,000 people immigrated from Sri Lanka. We hope with the proper policies, especially the macroeconomic policies, many of those who have left the country will see again, the potential of Sri Lanka and hopefully, will decide to come back to this country to help its growth potential.

QUESTIONER: Yeah, I know you were sort of -- there was this ruling on last Friday with this Hamilton Reserve Bank case with the Government. They came up with a protective order on any discovery material. Does it concern you in terms of ensuring transparency on some of these settlements with the private creditors?

MR. SRINIVASAN: I think Peter or Sarwat can answer that better than me.

MR. BREUER: Yeah. So, we are monitoring the situation with this lawsuit closely. But in the end this IS legal action between some private creditors and the Government. And so, as such, we can't really comment on that.

QUESTIONER: Thank you. I’m from AFP. Sri Lanka's record with the IMF previous 16 programs, they have not been able to complete those programs. So, what gives you confidence now that it's going to be different?

MR. SRINIVASAN: Sorry, your question was what gives the confidence that they'll complete this program?

QUESTIONER: Yes.

MR. SRINIVASAN: Yeah. So, let me just make the point that this program is slightly different in one critical way. And that is debt is assessed to be unsustainable. In the past, we've had crisis, which is more of a balance payments crisis. This is a crisis where your debt is assessed to be unsustainable. So, that goes into the issue of what do you do to ensure that debt is sustainable? And that requires some very strong reform efforts. So, even as we talk about revenue based fiscal consolidation and so on, which is pretty ambitious, but there's little by way of choice, because if you don't do these reforms, your debt is going to get worse, and you don't want that. In terms of the commitment, so far, the authorities have shown commitment towards the reform efforts. As I mentioned before, we tabled the staff report for discussion by our executive board.

Sri Lanka had to meet a number of prior actions, and these were quite few of them, and quite extensive, and they made all of them. So, it's important to recognize the fact that they did show commitment to the reforms.

Now, going beyond that, I would say there are a couple of things which are different in this program, which go towards building greater ownership and buy-in from population at large. One, of course, is one pillar of this program is to improve the governance framework and reduce corruption. And building, as I mentioned, this diagnose exercise we have on corruption that, which is for the first time in Asia, and this was requested by the authorities. And so that's feeding into the program, and that should give some should add assurance to people that yes, this issue is being taken seriously.

The second issue is in terms of getting buy-in from support of the people. We recognize that this program is very ambitious. It's a difficult program, and it has a particularly disproportionate impact on the poor and vulnerable. So, in the program, we actually have a floor on social spending, which help safeguard the poor and vulnerable, and that is being done. We are monitoring that closely with our colleagues from the World Bank who have defined a social registry and so on. So, I think these are different elements of a program which going towards buying ownership and support from general people. So, in that sense I believe there is reason to believe that there's commitment and this program will succeed.

QUESTIONER: About the state-owned enterprises reforms, like the CEB, what advice do you want that?

MR. SRINIVASAN: Maybe Sarwat or Peter can take the question.

MS. JAHAN: So, in our program, we also look into the issues of SOEs. A lot of these SOEs are not profit making, and they have been drained on public finances. So, in our program, as you have seen, we do have a structural benchmark on cost recovery for both fuel and electricity pricing. And that is a continuous benchmark. That means throughout the four years of the program, these two SOEs will have to be cost recovery.

In addition to that, there are other SOEs that are not profit making, and we have looked into those too, and we have acts that there is a restructuring of their balance sheets. And these are some of the measures that we are looking into to help public finances in Sri Lanka.

QUESTIONER: You referenced the social registry that the World Bank is working on, and the importance of looking into social safety net has been a recurring theme in your reports and statements. Recently, the Government said it has finished the welfare benefit enumeration scheme, and sections within Sri Lanka have said that it's a very faulty exercise, and many people who are actually poor are left out. And the World Bank itself has said that poverty has doubled in Sri Lanka. So, does the IMF have any role in determining whether the Government's enumeration scheme is good enough and whether the really poor get covered?

MS. JAHAN: Protecting the poor and the vulnerable is a very important pillar of the IMF program. Under the program, what we have done is we have looked at the spending on social safety nets. As Dr. Krishna has mentioned, if you look at our quantitative targets, there we have a floor on how much the Government must spend on social safety nets. In the last budget, the Government had committed to spend about 187 billion rupees on four of the biggest cash transfers.

Of course, spending is helpful, but targeting is also quite helpful. And we have noted with our colleagues at the World Bank that the social registry that you refer to is actually dynamic. So, if there are people who have grievances that their data validation is incorrect, or they have been left out of the data validation altogether, and they have not been able to register, then those grievances should be brought up to the authorities and they should be addressed.

QUESTIONER: But are you satisfied with the exercise so far and the methods?

MS. JAHAN: So, what we did was we looked at the way we're monitoring it. It's actually on the spending on social safety nets, and that is something that we can monitor. On the design of the social safety net, that is something that the authorities are working with other institutions.

QUESTIONER: This is Krishan from AP. Regarding the governance diagnostics, but for the countries that were subjected to this exercise before, and have they been consequential towards the program, the reports been consequential toward the programs afterwards?

MR. SRINIVASAN: So, your question was on the governance diagnostic, yeah?

QUESTIONER: Yeah, governance.

MR. SRINIVASAN: So, I don't have the list of countries which have requested this, and it doesn't have to be program country. There have been other countries, there have been countries which just based of pure surveillance have asked for this diagnostic and what they have done -- I know one country, Peru, for instance, where I worked on many years ago, where this diagnostic was done, and it was part of the reform agenda they had, not in the context of the IMF program, but even besides that. But there are other countries for which we have done that. I can send you the list of countries that have done that. I don't have it with me offhand.

MS. JAHAN: To Krishna's answer, I'd also like to add that on the IMF website, we do have a dedicated webpage where we talk about the Governance Diagnostics, and the countries that have completed this exercise. I can share the link.

MS. YAN: We can share with you afterwards.

QUESTIONER: On this social safety thing. There was some data was released last week, which really showed 400 million expenditure data for the next six, nine months on this welfare, plus about 1.5 billion in 36 months. Is this sustainable? I know we have been -- World Bank has committed some money, but we haven't really seen a transfer of funds. But how sustainable is this and how affordable is this?

MS. JAHAN: In the program, the amount that can be spent on social safety nets is actually determined by the authorities' fiscal space. So, we have encouraged the authorities to have the floor on social spending. So, this year, they'll have about 0.6 percent of GDP on social safety nets. And then we also encourage to have this amount throughout the program period. Of course, if economic situation improves and there's more fiscal space, then naturally more can be dedicated to these important programs.

MS. YAN: Yeah, there is a question in the back.

QUESTIONER: Hello, I’m from Asia Broadcasting Corporation. You guys touched extensively on the domestic debt restructuring process. I just want to ask has this Sri Lankan Government come to the IMF for council, let's just say on how best to proceed with the domestic restructuring, domestic debt restructuring?

MR. BREUER: We are in constant dialogue with them on these issues for the reasons I mentioned earlier that a, we want to make sure that what they're working on will meet the targets, and b, it will ensure both macroeconomic and financial stability. Because we don't want them to be working for many months on their own and then come to us and it doesn't meet these criteria. Oh, well, we're not so sure. So, it's an ongoing process in which we discuss these issues to make sure that those objectives are met.

QUESTIONER: So, it's a rolling consultation program.

MR. BREUER: It's an, it's an ongoing discussion. Yeah, we are here. So, this is part of the discussions we are having now. And also we have constant virtual interactions from Washington. So, there is an ongoing dialogue, just as there is with respect to all the other issues of the program. The macroeconomic part, the structural reforms that are ongoing. It's an important part of the program, restoring debt sustainability.

MS. YAN: Okay. Do we have more questions?

QUESTIONER: There was a religious leader who said, whether it's IMF or whoever, it's the same rogues who are borrowing this money. That's one, whether I want to see whether you have a comment.

Other one is, there is political rhetoric is that despite the program, it'll take another five years. First, for Sri Lanka to recoup the lost value growth, economic growth. What is your response?

MS. YAN: Let's maybe take the other one so we can wrap up.

QUESTIONER: In terms of public buy in, do you have any assessment currently on the public perception of the program and the painful reforms that are coming?

Ms. YAN: Thank you.

MR. SRINIVASAN: So, on the first question I think you talked about someone said that, it again, touch upon corruption growth, right, corruption. So, again, like I said addressing corruption and improving governance is a key pillar of the program. So, one, you can't disentangle the two. So, to the extent that we are addressing these issues in the context of the program, it should give support to the reform effort.

On your second question on whether we can recoup growth thing, I think when you have a financial crisis, when you have a crisis of this proportion, there's often a permanent loss, but that can be addressed through structural reforms and so on. So, the first phase we are right now is macro stabilization, macro fiscal stabilization, right. Once that is achieved, and also as part of that concomitantly, we could talk about structural reforms, which will help address these longer-term growth issues, right. And that's the whole objective of program right now is macro stabilization, but underpinning that is the aspiration to put the country back on the growth to prosperity and sustainable growth.

On your question about public perceptions, I don't think we've done a survey. No, we haven't done, I don't think, not the question. I'm think here, we haven't done a survey, but we do follow media very actively, so we know what the concerns are. And to the extent possible, we try to address that in our dialogue with the authorities.

MR. BREUER: Actually, can I just add on this? So often in the public's perception the two things are sort of mixed together that you have a severe crisis in Sri Lanka. It's really a severe crisis, which hits people very hard with respect to their livelihood, employment, inflation, the cost of living, all these things. And then, the IMF comes along and there's a negotiation with the authorities about the reforms that are needed to get out of that crisis. So, in people's perception, these two things are linked, and they may not like it. But Sri Lanka is actually a very good example of what happens when the IMF isn't here. As you know, the crisis happened more than a year ago. We negotiated staff level agreement on September 1, and then there has been a long period until March where the IMF program had not yet started.

And the pain was palpable in Sri Lanka. You know it a lot better than we do, we just observe it from the outside. But the pain was clear and present. What the IMF does is it provides some financing that cushions the transition from this very harsh reality to a new equilibrium. So, it gives a little bit of breathing space to let these reforms that are necessary take place and help the country emerge from the crisis. So, that is really the part that helps the population to emerge from the crisis in the medium term.

MS. YAN: Do you want to add anything?

MS. JAHAN: Yes. I wanted to say that being here in Colombo, I do get a firsthand feel of what the country is going through, and I do, as we all do. We feel the pain and the suffering of Sri Lanka. As Peter had mentioned, high interest rates, inflation, loss of jobs, is a tremendous crisis for Sri Lanka. But we also are here to work with you. So that through the stabilization process, Sri Lanka will come back to where it was perhaps two years ago.

MS. YAN: Thank you. So, thank you very much for joining us today. We will post Krishna's opening remarks and also the video recording of this press briefing on IMF.org later. Thank you very much.

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