The International Monetary Fund (IMF) has given the green light for the third review of Sri Lanka's $2.9 billion bailout. Although some economic recovery is underway, the IMF has cautioned that Sri Lanka's financial situation remains fragile.
Following the approval, the IMF announced it would disburse approximately $333 million to Sri Lanka, bringing the total funds released so far to $1.3 billion. This financial boost comes as the nation continues to grapple with the aftereffects of its worst economic crisis in over 70 years.
Debt Restructuring Still Pending A significant hurdle remains: Sri Lanka must complete the restructuring of $12.5 billion in bonds and renegotiate around $10 billion in debt with key bilateral creditors like Japan, China, and India. This restructuring is critical to advancing the IMF's support program.
The original bailout, approved in March last year, played a crucial role in stabilizing Sri Lanka's economy after it faced severe cash shortages in 2022. To ensure continued progress, the IMF emphasized the importance of meeting tax revenue goals and implementing reforms in state-owned enterprises. These measures are necessary to reach the target of a primary budget surplus of 2.3% of GDP by next year.
IMF's Future Plans for Sri Lanka Peter Breuer, the IMF’s Senior Mission Chief, acknowledged the government's commitment to adhere to the program’s guidelines. "The authorities have committed to staying within the guardrails of the programme," he said. He also noted that once the proposed budget is submitted to Parliament, preparations for the fourth review can move forward. Sri Lanka's newly appointed President, Anura Kumara Dissanayake, aims to present an interim budget in December and complete the debt restructuring by year-end.
Signs of Recovery, But Challenges Remain During the height of the crisis, Sri Lanka's economy experienced severe impacts, including inflation surging to 70%, the national currency plummeting to record lows, and a 7.3% contraction in 2022. However, recent trends are more optimistic. The Sri Lankan rupee has appreciated by 11.3%, and inflation has significantly cooled, with prices dipping by 0.8% last month.
Looking ahead, the World Bank projects that Sri Lanka's economy will grow by 4.4% this year, marking the first positive growth in three years.
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