The International Monetary Fund (IMF) and its Executive Board have completed the first review under the 48-month Extended Fund Facility with Sri Lanka, providing the cash-strapped country with access to about $337 million to restore the macro-economic stability and debt sustainability.
Announcing this, Peter Bruer Senior Mission Chief for Sri Lanka also said that the debt restructuring with the People’s Republic of China was concluded on a strictly confidential basis for the IMF to conclude its first review.
Statement by Peter Bruer
“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 agreements shared by the authorities on a strictly confidential basis, Bruer told reporters on December 12, 2023. The IMF on the same day concluded the review and approved the release of the second tranche worth 337 million USD to the island nation bringing the value of disbursements to 670 million USD in the four-year facility.
The IMF Review
Bruer said that the IMF Executive Board complimented the first review under the 48-month Extended Fund Facility with Sri Lanka providing the country with access to Special Drawing Right (SDR) 254 million. This brings the total IMF financial support disbursed so far to SDR(508) million out of the total amount of SDR 2.286 billion
The program 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 the largest creditor. The IMF insists on the continuation of 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 economic reforms for Sri Lanka to come out of the ongoing economic crisis.
Signs of Recovery
Bruer 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, Bruer said.
The Island nation’s economy would continue to be in a negative growth of 3.6 percent in 2023 and while it could grow by 1.8 percent in 2024. The IMF Mission Chief said that 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. (Value Added Tax) 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 83 billion in debt and more than half of it to foreign creditors.
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