The International Monetary Fund (IMF) has approved the third review of Sri Lanka’s $2.9 billion bailout package, noting the country’s signs of economic recovery but also issuing caution about its ongoing vulnerabilities.
IMF Greenlights $333 Million Disbursement as Part of Bailout Program
The IMF announced on Saturday that it will release approximately $333 million to Sri Lanka, bringing the total disbursed funding under the current bailout to $1.3 billion. While the global lender acknowledged positive indicators of economic recovery, it emphasized that significant risks remain, particularly in relation to the country’s substantial debt restructuring process.
Debt Restructuring and Bilateral Negotiations Remain Key to Progress
To move forward with the bailout program, Sri Lanka must complete a $12.5 billion debt restructuring with bondholders and a separate $10 billion debt rework with key bilateral creditors, including Japan, China, and India. The IMF highlighted that these negotiations remain essential for ensuring the country’s fiscal stability and securing further assistance.
Sri Lanka’s bailout, secured in March 2023, was crucial in stabilizing the country’s economic situation after it faced its worst financial crisis in over seven decades. In 2022, Sri Lanka defaulted on its $46 billion external debt and experienced severe shortages of foreign exchange, which led to widespread shortages of food, fuel, and medicine, as well as months of mass protests and the resignation of President Gotabaya Rajapaksa.
Progress Since the Crisis: Stabilization and Signs of Recovery
Reporting from Sri Lanka’s capital, Colombo, Al Jazeera’s Minelle Fernandez noted that the IMF is encouraged by the progress made since the crisis. “The economy has stabilised from the dark days of 2022 when the country lacked the money to pay for essential imports such as fuel and food,” Fernandez reported. The IMF’s approval of the third review reflects the government’s efforts to stabilize the economy, ensure the steady supply of necessities, and restore foreign reserves.
IMF’s Continued Focus on Fiscal Discipline and Reforms
Despite the positive signs, the IMF cautioned that Sri Lanka must continue its fiscal reforms to meet a target of achieving a primary surplus of 2.3% of GDP by next year. IMF senior mission chief Peter Breuer stressed the importance of maintaining tax revenue targets and implementing reforms of state-owned enterprises.
“The authorities have committed to staying within the guardrails of the programme,” Breuer said at the conclusion of the IMF delegation’s visit to Colombo. He also pointed out that stabilizing the economy and securing the flow of basic goods would be supported by the latest cash infusion from the IMF.
Conclusion: A Long Road to Economic Stability
While Sri Lanka has made significant strides since the peak of its crisis, the country still faces substantial economic challenges. The successful completion of its debt restructuring and continued fiscal discipline will be crucial in maintaining momentum toward sustainable recovery. As the IMF continues to monitor the country’s progress, the release of additional funds will help Sri Lanka navigate these complex economic hurdles.
