Sri Lanka: IMF approves third review of a $ 2.9 bn bailout, but warns of risks ahead
Virendra Pandit
New Delhi: The International Monetary Fund (IMF) approved the third review of Sri Lanka’s USD 2.9 billion bailout package on Saturday but warned that the South Asian nation’s economy remains vulnerable, the media reported.
Cash-strapped Sri Lanka plunged into a severe financial crisis in 2022, the worst since its independence from the British in 1948, with a critical dollar shortage sending inflation soaring up to a whopping 70 percent and triggering an unprecedented political upheaval that toppled the Rajapakse clan from power.
Slowly, however, it started recovering. Sri Lanka’s economy is expected to grow 4.4 percent in 2024, the first increase in three years, according to the World Bank.
In a statement, the IMF said it would release about USD 333 million, bringing total funding to around USD 1.3 billion, to the crisis-hit nation. The global lender said signs of an economic recovery were emerging.
India’s next-door neighbor still needs to complete a USD 12.5 billion bondholder debt restructuring and a USD 10 billion debt rework with bilateral creditors including China, Japan, and India to take the program forward, the IMF said.
The bailout secured in March 2023 helped stabilize economic conditions after a nearly bankrupt Sri Lanka plunged into its worst financial crisis in more than seven decades.
It will require following tax revenue requirements and continuing reforms of state-owned enterprises will remain crucial to hitting a primary surplus target of 2.3 percent of gross domestic product in 2025, said IMF Senior Mission Chief Peter Breuer, wrapping up a delegation visit to the nation’s capital Colombo.
“The authorities have committed to staying within the guardrails of the program,” he said.
“We have agreed on a package for them to achieve their priorities and objectives and as soon as that is submitted to parliament it will then be possible to go ahead with the fourth review process.”
An interim budget is expected to be presented to parliament in December, Sri Lanka’s new president, Anura Kumara Dissanayake, said this week. He hopes to complete the debt restructuring by December 2024.
During Sri Lanka’s financial crisis, a severe dollar shortage sent inflation soaring up to 70 percent, its currency to record lows and its economy contracting by 7.3 percent during the worst of the fallout and by 2.3 percent last year.
In recent months, the rupee has risen 11.3 percent and inflation disappeared, with prices falling 0.8 percent last month.
