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Sri Lanka’s Dollar Bonds Lead EM Peers on IMF Deal Reports

·2 min read

(Bloomberg) -- Sri Lanka’s bonds are leading gains in emerging markets after reports that the debt-ridden nation has reached a preliminary agreement with the International Monetary Fund for an emergency loan.

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Securities due March 2030 rose as many as 3.4 cents to 34.37 cents on the dollar, posting a second day of gains. The Reuters report, which cited four unidentified people with direct knowledge of the matter, gave few other details on the talks between President Ranil Wickremesinghe’s government and the IMF.

The nation’s central bank governor and finance secretary didn’t respond to phone calls seeking comment. The IMF team in the country said discussions were ongoing. “We plan to conclude the mission and issue a press release on Thursday,” the visiting team said in a statement.

“Expectations regarding the timeline for an IMF agreement and a restructuring of the country’s debt were quite pessimistic and Sri Lanka is definitely moving forward faster,” said Guillermo Guerrero, a strategist at EMFI Group Limited. “All in all, the rally so far is appropriate and we wait for developments on the restructuring front for further upward movement.”

Sri Lanka is seeking as much as $3 billion from the IMF as it deals with its worst economic crisis since independence. The country on Tuesday raised tax rates and announced reforms in its interim budget.

“The island nation will increase value-added tax to 15% from the current 12% starting Sept. 1,” Wickremesinghe said in his budget speech. “The amended budget will help in economic recovery.”

Wickremesinghe said talks with the IMF were successful and in their final stages, adding that Sri Lanka plans to formulate a new public finance management law and set up nation debt management agency to improve its fiscal health.

Dwindling foreign-exchange reserves, crippling shortages of essential items and Asia’s fastest inflation has hurt the $81 billion economy. The nation’s forex stockpile stood at $1.82 billion in July, while its headline inflation surged to a record 60.8% in the same month.

Besides the IMF, Sri Lanka is tapping India, Japan and China for bridge financing.

(Updates with bond moves in first and second paragraphs, adds analyst’s quote in fourth paragraph)

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