The International Monetary Fund on Wednesday said that it has asked Sri Lanka to restructure its foreign debt before a bailout programme could be finalised for the island nation, AFP reported.

Sri Lanka had approached the International Monetary Fund for a bailout after it had announced that it would default on its entire external debt worth $51 billion (over Rs 3.88 lakh crore). A country’s external debt pertains to the money borrowed by it from foreign lenders through commercial banks, governments or international financial institutions.

Debt restructuring allows a company or a nation in financial distress to reduce or renegotiate lower interest rates on loans taken or extend payment due dates.

The island nation has been mired in public debt over the last few months. Amid a decline in the country’s foreign currency reserves, Sri Lankans are facing shortages of medicines, milk powder, cooking gas, kerosene and other essential items.

The shortages have led to widespread protests against the Sri Lankan government. On Tuesday, one person was killed and 15 were injured in Rambukkana town after the police opened fire to disperse those protesting.

The International Monetary Fund’s Sri Lanka Mission Chief Masahiro Nozaki told Reuters that the financial institution was “very concerned” about the economic situation in the country, but noted that talks with the Sri Lankan government were still in “early stages”.

Nozaki said that an International Monetary Fund-supported programme should be designed to resolve the Island nation’s problems so that the economy starts growing sustainably. However, he added that IMF staff had determined last month that Sri Lanka’s public debt was unsustainable, Al Jazeera reported.

“When the IMF determines that a country’s debt is not sustainable, the country needs to take steps to restore debt sustainability before IMF lending,” Nozaki said, according to AFP. “Approval of an IMF-supported program for Sri Lanka would require adequate assurances that debt sustainability will be restored.”

The International Monetary Fund also said that due to Colombo’s existing debt, the country cannot apply for emergency financing.

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World Bank assures emergency support

Meanwhile, the World Bank has said it was ready to provide emergency support to Sri Lanka, the Colombo Gazette reported on Wednesday.

World Bank Vice President Hartwig Schafer gave the assurance to Sri Lanka Finance Minister Ali Sabry at a meeting in Washington. Sabry is in the American capital to hold talks with officials of the International Monetary Fund and the World Bank.

During his meeting with Sabry, Schafer told him that the World Bank was concerned about the impact of the economic distress on the poor and vulnerable population of Sri Lanka. The financial body would provide emergency support for essential medicines and health-related supplies and education, according to the Colombo Gazette.