Aurelia Butler

It means a near two-year spell in default will drag on for Sri Lanka and that the country’s next tranche of vital IMF support money could potentially get delayed. Below is a timeline of the key events in the crisis and the efforts to resolve it:2021-2022: Sri Lanka’s economy crumbles after years of overspending leaves its foreign exchange reserves critically low and the government unable to pay for essentials, such as fuel and medicine.The country’s bonds suffer from multiple downgrades by credit rating agencies warning of the increasing risk of default. At the start of 2022 it manages to make a $500 million bond payment but it leaves its foreign exchange reserves precariously low. MAY, 2022 – Sri Lanka is declared in default after it fails to make a smaller $78 million bond coupon payment. JULY, 2022 – Public anger drives protesters to storm then-President Gotabaya Rajapaksa’s office and residence. Rajapaksa flees to the Maldives, before moving on to Singapore.Current President Ranil Wickremesinghe is voted into power by Sri Lankan lawmakers.MARCH, 2023 – The International Monetary Fund approves a near $3 billion bailout for Sri Lanka after talks with Wickremesinghe’s government and assurances about its plans to repair the country’s finances. OCTOBER, 2023Sri Lanka announces an agreement with China’s EXIM (export/import) Bank to delay payments on about $4.2 billion worth of loans the Chinese lender it has extended to the country.NOVEMBER, 2023Other creditor nations including India, Japan and France agree to restructure about $5.9 billion in debt. MARCH, 2024A group of Sri Lankan officials arrives in London to meet with a number of investment funds that hold its more than $12 billion worth of government bonds. Talks advance to the key “restricted” phase where proposals are discussed privately and those involved agree not to buy or sell any of the debt on the open market. APRIL, 2024 The government rejects a proposal tabled by the bondholders. The main stumbling blocks are that some the “baseline” assumptions used differ to those of the IMF and that the plan did not include a contingency option for the government in case the economy fails to recover as expected. More

The 2.0% GDP increase forecast for 2024 across the region compares to 2.3% in 2023, and a 2025 forecast of 2.5%.The overall slowdown in growth is due in part to smaller rates of growth in the region’s largest economies. Yet Brazil’s 2.2% growth estimate for this year is 0.5 percentage point higher than the January view. Mexico’s 2.4% estimate is 0.3 percentage point below the estimate from three months ago.These numbers would be a deceleration from the 2023 growth in output, which was 2.9% for Brazil and 3.2% for Mexico.”In Brazil, growth is expected to moderate to 2.2% in 2024 on the back of fiscal consolidation, lagged effects of still-tight monetary policy, and a smaller contribution from agriculture,” said the IMF.For Mexico, the fund cited a contraction in manufacturing as key for the forecasted growth deceleration, while increased government spending would be a pillar of this year’s expected growth.Elsewhere in the region, the IMF expects Argentina’s contraction to deepen to -2.8% this year from 2023’s -1.6%, with annualized consumer inflation seen just under 250%. The fund sees a current account balance in the black at 0.9% of GDP, compared to last year’s -3.5%.Colombia, Chile and Peru are seen growing at faster rates than last year. Colombia’s 1.1% GDP growth estimate compares to last year’s 0.6%, Chile is seen accelerating to 2.0% from 0.2% and Peru’s 2.5% expansion would follow a 0.6% contraction in 2023.For central America the estimate is for 3.9% output growth, compared to 4.2% last year, while the Caribbean is seen accelerating further to 9.7% in 2024 from last year’s 8.3%.Globally, the IMF said the economy is set for a yearly 3.2% output growth, with U.S. strength offsetting headwinds from lingering high inflation, weak demand in China and Europe, and spillovers from two regional wars.Last week, the World Bank downgraded its 2024 economic growth forecast for Latin America and the Caribbean to 1.6%. More

COLOMBO (Reuters) -Sri Lanka on Tuesday rejected international bondholders’ proposal to restructure more than $12 billion in debt, putting at risk critical International Monetary Fund support and delaying its efforts to resolve a two-year-long debt crisis. Some of the proposal’s “baseline” assessments and a lack of a contingency option in the case of continued economic weakness were two the main reasons the deal was not agreed, the government said in a statement.Colombo said it hoped to hold further talks “as soon as feasible” but the immediate risk was that without a compromise in the coming weeks, the next tranche of all-important IMF support money could potentially get delayed. Sri Lanka has already struck a deal with its main government creditors, but an “agreement in principle” with bondholders was also needed to secure IMF Board approval for the next $337 million instalment of its $2.9 billion programme.The government said one of the main stumbling blocks had been that the “baseline parameters” of the bondholders’ plan had not matched those embedded in its IMF programme. It added that the bondholders’ “steering committee” that it has been negotiating with in recent weeks had not wanted to extend “restricted discussions” – a key part of debt talks where they are held privately, behind closed doors. As well as the divergence from the IMF, Sri Lanka disagreed with a proposal to link future repayments to bondholders to the country’s macroeconomic growth, through “macro-linked bonds” or MLB for short. It said it was seeking more protections if Sri Lanka’s economy were to underperform IMF’s growth projections, and a “test” for triggering both the upward and downward adjustments in the MLB.Disappointment that a deal had not yet been reached sent Sri Lanka’s bonds down between 2.3 and 2.8 cents, leaving them at just over half their original face value at between 53 and 55 cents on the dollar.”Completing the IMF review by June becomes difficult now because there will have to be more talks,” said Udeeshan Jonas, chief strategist at equity research firm CAL Group.RIGHT DIRECTIONSri Lanka plunged into its worst financial crisis since independence from the British in 1948 after its foreign exchange reserves fell in early 2022 leaving it unable to pay for essentials including fuel, cooking gas, and medicine. The island nation defaulted on its foreign debt in May 2022 and kicked off negotiations with bilateral creditors several months later, eventually securing an agreement in principle with China, India and the Paris Club last November.Sri Lanka also needs agreements with each of the bilateral creditors, including the Export-Import Bank of China, to complete the IMF review process. Supported by the IMF program, Sri Lanka has seen its once soaring inflation moderate to 0.9% in March and its currency strengthen 7.6% so far this year. The economy is expected to return to growth after contracting 2.3% in 2023.It is one of several poorer countries that have been hit by debt crisis in recent years and were struggling to put it behind.Ghana this week has also seen its $13 billion restructuring talks stumble after the IMF indicated that the deal it was hoping to strike with bondholders would not be enough to make its debt levels sustainable again.Viktor Szabo a emerging market debt portfolio manager at Abrdn in London said Sri Lanka’s setback was likely to be just a delay rather than a deal-breaker. “It is moving in the right direction,” Szabo said. “But it is just a bit slower than expected”. More

WASHINGTON (Reuters) – The global economy is set for another year of slow but steady growth, the International Monetary Fund said on Tuesday, with U.S. strength pushing world output through headwinds from lingering high inflation, weak demand in China and Europe, and spillovers from two regional wars.The IMF forecast global real GDP growth of 3.2% for 2024 and 2025 – the same rate as in 2023. The 2024 forecast was revised upward by 0.1 percentage point from the previous World Economic Outlook’s estimate in January, largely due to a significant upward revision in the U.S. outlook. “We find that the global economy remains quite resilient,” Pierre-Olivier Gourinchas, the IMF’s chief economist, told reporters, adding that many countries have defied gloomy predictions of recession as central banks hiked interest rates to fight inflation. Many countries also are showing less “scarring” from the COVID-19 pandemic and cost-of-living crises, returning to pre-pandemic levels of output more quickly than previously predicted, the IMF said in its report.Inflation is falling, but progress in bringing it back to central bank targets has slowed in recent months, Gourinchas said, noting that recent U.S. data shows robust demand.”The general trajectory still remains one where we expect inflation to come down over the year and put the Federal Reserve in a position where it will be able to start easing the policy rates,” he told Reuters. “Maybe not as quickly as what the markets had expected.” The IMF forecast 2024 U.S. growth of 2.7% compared to the 2.1% projected in January, on stronger-than-expected employment and consumer spending at the end of 2023 and into 2024. It expects the delayed effect of tighter monetary and fiscal policy to slow U.S. growth to 1.9% in 2025, though that also was an upward revision from the 1.7% estimate in January. But the latest IMF forecasts showed stark divergences with other countries, including in the euro zone, where the 2024 growth forecast was revised downward to 0.8% from 0.9% in January, primarily due to weak consumer sentiment in Germany and France. Britain’s 2024 growth forecast also was revised down by 0.1 percentage point to 0.5% as the country struggles with high interest rates and stubbornly high inflation.CHINA PROPERTY WOESThe IMF left unchanged its forecast for China’s 2024 growth to fall to 4.6% from 5.2% in 2023, with a further drop to 4.1% for 2025. But it warned that the lack of a comprehensive restructuring package for the country’s troubled property sector could prolong a downturn in domestic demand and worsen China’s outlook.Such a situation could also intensify deflationary pressures in China’s economy, leading to a surge in cheap exports of manufactured goods that could stoke trade retaliation by other countries – a scenario that U.S. Treasury Secretary Janet Yellen warned about during a trip to China earlier this month.The IMF recommended that China accelerate the exit of non-viable developers and promote the completion of unfinished housing projects, while supporting vulnerable households to help restore consumer demand.But the global lender noted bright spots in some other big emerging market countries, raising its growth forecast for Brazil’s economy in 2024 by half a percentage point to 2.2% and increasing the forecast for India’s economic growth by 0.3 percentage point to 6.8%.It noted that Group of 20 large emerging market countries are now playing a bigger role in the global trading system and have the capability to shoulder more of the growth burden going forward.But the IMF said low-income developing countries continue to struggle with post-pandemic adjustments and greater levels of economic “scarring” than middle-income emerging markets. As a group, these low-income developing countries saw their 2024 growth forecast cut to 4.7% from an estimate of 4.9% in January.RUSSIAN RESILIENCE In one of the biggest surprises, Russia’s 2024 growth forecast was increased to 3.2% from the 2.6% projected in January. The report attributed the increase partly to continued strong oil export revenues amid higher global oil prices despite a price-cap mechanism imposed by Western countries, as well as strong government spending and investment related to war production, along with higher consumer spending in a tight labor market. The IMF also upgraded Russia’s 2025 growth forecast to 1.8% from 1.1% in January. Ukraine’s growth, which is highly dependent on economic aid from the West, is forecast to slow to 3.2% in 2024 and accelerate to 6.5% in 2025.While initial price spikes for grains, oil and other commodities have faded since Russia’s 2022 invasion of Ukraine, a widening of the conflict could cause them to intensify.Similarly, in the Middle East conflict, the trade disruptions and higher costs for ships avoiding Red Sea attacks have been on a “moderate scale,” Gourinchas said, adding: “We are concerned about potential escalation.” More

Analysts polled by Reuters had forecast inflation to accelerate to 2.9% from 2.8% in February. Month-over-month, the consumer price index rose 0.6%, the largest increase since July 2023, but less than a forecast 0.7% gain.The acceleration in the annual rate was driven by costlier fuel at the pump as supply concerns and voluntary production cuts pushed global crude prices higher, Statistics Canada said. Excluding gasoline, inflation slowed to 2.8% from 2.9% in February.The Bank of Canada (BoC), trying to cut inflation to a 2% target, kept its key interest rate unchanged at a near 23-year high of 5% last week, but said a cut in June was possible if the cooling trend in inflation is sustained. The Canadian dollar fell to a five-month low against the U.S. dollar after the inflation data. It was last at C$1.3820 per U.S. dollar.Money market bets for a June rate cut increased to over 50% from 44% before data, according. “I don’t think it’ll create a big problem for (Bank of Canada). We think that a June rate cut is possible. I still think that’s a reasonable expectation,” Doug Porter, chief economist at BMO Capital Markets, said.Headline inflation has stayed under 3% since January and is in line with the BoC’s forecast for it remain close to 3% in the first half of 2024.CPI-median and CPI-trim – the bank’s preferred measures of underlying inflation – fell more than expected. CPI-median slowed to 2.8% from 3% in February while CPI-trim decreased to 3.1% from 3.2%. Economists had expected CPI-median to edge down to 3.0% and CPI-trim to remain at 3.2%.The BoC increased rates by 475 basis points to a 22-year high between March 2022 and July 2023 and has kept them on hold since for six consecutive meetings in its efforts. The BoC’s next rate announcement is on June 5, and the bank will also have data for April before then.In March, shelter prices continued to apply upward pressure, with the mortgage interest cost and rent indexes contributing the most to the year-over-year gain in the all-items CPI, Statscan said.Services inflation accelerated to 4.5% in March from 4.2% February, driven by air transportation and rent, while goods inflation slowed slightly to 1.1% from 1.2%.Excluding volatile food and energy, prices rose 2.9% compared with a 2.8% increase in February. More

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen on Tuesday said Iran’s attack on Israel last weekend and its financing of militant groups in Gaza, Lebanon, Yemen and Iraq threatened stability in the Middle East and could cause economic spillovers.Yellen began remarks prepared for a news conference by addressing what she called an unprecedented attack on Israel by Iran and its proxies, saying Treasury would use its sanctions authority and work with allies to “continue disrupting the Iranian regime’s malign and destabilizing activity.”The United States is using financial sanctions to isolate Iran and disrupt its ability to fund proxy groups and support Russia’s war in Ukraine, the Treasury Department said. Treasury has targeted more than 500 individuals and entities connected to terrorism and terrorist financing by the Iranian regime and its proxies since the start of the Biden administration in January 2021, Yellen said.That has included targeting Iran’s drone and missile programs and its financing of the Palestinian militant group Hamas, the Houthis in Yemen, Hizballah in Lebanon, and Iraqi militia groups, she said. “From this weekend’s attack to the Houthi attacks in the Red Sea, Iran’s actions threaten the region’s stability and could cause economic spillovers,” Yellen said, without giving details.She spoke at a news conference during this week’s meetings of the International Monetary Fund and World Bank, which bring top finance officials to Washington from around the world.Iran on Saturday launched more than 300 drones and missiles against Israel, its first direct attack on the country, in retaliation for a suspected Israeli air strike on its embassy compound in Damascus on April 11 killed elite military officers.Israel’s military said that it shot down almost all the drones and missiles, and that the attack caused no deaths, but the situation has increased fears of open warfare between the longtime foes.In Gaza, more than 33,000 Palestinians have been killed in the Israeli offensive launched against Hamas after the group attacked Israel on Oct. 7, killing 1,200 people and taking 253 hostages, according to Israeli tallies.Yellen said Washington was continuing to use economic tools to pressure Hamas, but said Treasury was emphasizing that its sanctions should not impede life-saving aid.She called for urgent action to end Palestinian suffering in the narrow enclave, noting that Gaza’s entire population of more than 2 million people was facing acute food insecurity and that most of the population had been displaced.”It is incumbent on all of us here at these meetings to do everything in our power to end this suffering,” she said.Yellen noted that Washington was also using sanctions to target extreme settler violence in the West Bank, while working to ensure a functioning banking system there and supporting IMF programs in Jordan and Egypt. More