Sri Lanka to get access to USD 337 million from IMF to stabilise economy

Colombo: The IMF Executive Board has completed the first review under the 48-month Extended Fund Facility with Sri Lanka, providing the cash-strapped country with access to about USD 337 million to restore macroeconomic stability and debt sustainability.

Announcing this, Peter Breuer, Senior Mission Chief for Sri Lanka also said that the debt restructuring with China was concluded on a strictly confidential basis for the International Monetary Fund (IMF) to conclude its first review of the USD 2.9 billion bailout.

China holds 52 per cent of Sri Lanka's total debt.

“The Chinese agreement in principle was very good news in Sri Lanka’s debt restructuring talks. We have seen a summary of the key financial terms of the agreement shared by authorities on a strictly confidential basis," Breuer told reporters on Tuesday.

The IMF late Tuesday concluded the review and approved the release of the second tranche worth USD 337 million to the island nation, bringing the value of disbursements to USD 670 million in the four-year facility.

Breuer said the IMF Executive Board completed the first review under the 48-month Extended Fund Facility with Sri Lanka, providing the country with access to SDR 254 million (about USD 337 million). This brings the total IMF financial support disbursed so far to SDR 508 million (about USD 670 million) out of the total amount of SDR 2.286 billion (about USD 3 billion).

The programme continues to support Sri Lanka’s efforts to restore macroeconomic stability and debt sustainability, safeguard financial stability, and enhance growth-oriented structural reforms, the IMF said in a press statement.

The review was put on hold due to prolonged debt restructuring negotiations, particularly with China, which is Sri Lanka’s largest bilateral creditor.

The IMF insists on the continuation of the hard economic reforms for Sri Lanka to come out of the ongoing economic crisis.

“We encourage the authorities to continue to build on these hard-won gains and further advance revenue mobilisation align energy pricing with costs and strengthen social safety nets," Breuer said.

Breuer added that although the Sri Lankan economy had shown signs of recovery it was not completely out of the woods just yet.

“The economy has started to move into the territory of expansion and there will perhaps be a positive growth next year," Breuer said.

He said the island nation’s economy would continue to be in the negative growth of 3.6 per cent in 2023 while it could grow by 1.8 per cent in 2024.

The IMF mission chief said Sri Lanka has been successful in debt negotiations, “putting debt on the path towards sustainability”.

Sri Lanka since entering the bailout negotiations had introduced unpopular reforms such as steep increases in personal taxes, high utility tariffs, and an increase in VAT.

President Ranil Wickremesinghe’s government has faced the brunt of protests on reforms ahead of the election year 2024.

Sri Lanka plunged into an economic crisis in 2022, creating severe shortages and drawing strident protests that led to the ouster of then-President Gotabaya Rajapaksa.

It declared bankruptcy in April 2022 with more than USD 83 billion in debt -- more than half of it to foreign creditors.