The International Monetary Fund (IMF) has resumed its $2.9 billion bailout package for Sri Lanka, with the South Asian country securing a crucial debt restructuring agreement with China, its largest official creditor.
The IMF’s board completed the first review of Sri Lanka’s Extended Fund Facility (EFF) and released a second tranche of $337 million.
Sri Lanka’s progress review, initially expected to conclude by September, faced delays due to pending financial assurances from China, which accounts for 52% of Sri Lanka’s bilateral debt. The IMF’s mission chief for Sri Lanka, Peter Breuer, acknowledged receiving China’s debt-restructuring offer, which aligns with the IMF’s debt sustainability targets.
Breuer noted that policy reforms in Sri Lanka are beginning to show positive results, with signs of economic stabilization emerging. However, he emphasized the importance of sustaining reform momentum for a comprehensive and swift recovery. The Sri Lankan government has committed to maintaining challenging reforms, including tax increases, energy subsidy cuts, and the privatization of state enterprises. Junior finance minister Shehan Semasinghe expressed gratitude for the cooperation from official creditors in the debt restructuring process.
Impact of Economic Crisis and IMF Loan Utilization
Sri Lanka faced a default on its $46 billion external debt last year, leading to a severe foreign exchange shortage that impacted essential imports. The IMF loan, spread over four years, is intended to help alleviate these challenges. With the latest disbursement, Sri Lanka has received approximately $670 million of the nearly $3 billion total loan amount.
The IMF commended Sri Lanka for its progress towards restoring debt sustainability and implementing economic reforms. Inflation rates, which soared last year, have shown a significant decrease. The country’s political landscape also witnessed upheaval, with the former president ousted amid civil unrest. President Ranil Wickremesinghe’s administration has implemented stringent measures to boost state revenue and address the economic crisis.
