- US$ 1.3 billion provided so far
- Praises “strong program performance”
- Reform efforts bearing fruit
The International Monetary Fund (IMF) approved the third review of Sri Lanka’s US$ 2.9 billion, 48-month Extended Fund Facility (EFF) on Friday, releasing the fourth tranche of US$ 334 million and bringing the total funding so far to US$ 1.3 billion.
“Program performance has been strong with all quantitative targets met, except for the indicative target on social spending. Most structural benchmarks due by end-January 2025 were either met or implemented with delay,” Deputy Managing Director of the IMF Kenji Okamura said, announcing the decision.
The Washington-based IMF Executive Board’s decision comes just days after President Anura Kumara Dissanayake presented the National People’s Power (NPP) Government’s first full-year National Budget, which included committing to a primary surplus target of 2.3 percent of GDP for 2025 which was previously set under the IMF program.
President Dissanayake said in his Budget Speech that inflation, which reached 70 percent during the height of the economic crisis in 2022, has virtually disappeared and the Sri Lanka Rupee’s (LKR) depreciation had slowed to 1.3 percent against the US Dollar (USD). All other economic sectors were also showing signs of improvement, he said.
“The recent successful completion of the International Sovereign Bond (ISB) exchange is a major milestone towards restoring debt sustainability,” the IMF said in an additional statement.
“Reform efforts are bearing fruit with there covery gaining momentum. As the economy is still vulnerable, sustaining the reform agenda is critical to put the economy on a path towards lasting recovery and debt sustainability,” the statement added.
Sri Lanka completed a nearly US$ 25 billion international debt restructuring process with ISB holders and key bilateral creditors (Paris Club, China, India) last year, which was another major IMF requirement to continue with the EFF program. The EFF secured in March 2023 helped stabilise the economy after forex-starved Sri Lanka faced its worst financial crisis in 2022 and announced a sovereign default. The economy contracted by a record 7.3 percent during the worst of the crisis, characterised by power cuts, fuel shortages and lack of essentials, and by 2.3 percent in 2023. But Sri Lanka’s economy is expected to grow by five percent this year, showing encouraging signs of recovery faster than expected.
Sri Lanka sought IMF assistance for the 17th time in 2023 following the debt default, its first in post-Independence history, and pledged to follow it through, unlike on previous occasions when the programs were abandoned halfway.
