Global lender says it will release about $333m to crisis-hit nation as signs of economic recovery emerge.
The International Monetary Fund (IMF) has approved the third review of Sri Lanka’s $2.9bn bailout but warned that the South Asian island nation’s economy remains vulnerable.
The global lender said on Saturday that it would release about $333m, bringing total funding to $1.3bn, to the crisis-hit nation. Signs of an economic recovery were emerging, it said.
Sri Lanka still needs to complete a $12.5bn bondholder debt restructuring and a $10bn debt rework with bilateral creditors including Japan, China and India to take the programme forward, the IMF said.
The IMF bailout secured in March last year helped stabilise economic conditions after the cash-strapped country plunged into its worst financial crisis in more than seven decades in 2022.
Reporting from the capital, Colombo, Al Jazeera’s Minelle Fernandez said the IMF seemed happy with the pace the government has been keeping and the economy “has stabilised from those dark days of 2022 with no money for fuel, food, medicine, energy”.
Sri Lanka went to the IMF for a rescue package after defaulting on its $46bn external debt in April 2022.
The shortage of foreign exchange, which left the country unable to finance even the most essential imports of food and fuel, led to months of mass street protests and forced then-President Gotabaya Rajapaksa to resign.
“Keeping things stable in order to shore up reserves, in order to make sure there’s a stable supply of basic necessities, all of those things will be facilitated by this cash infusion that the Sri Lankan government gets,” according to Fernandez.
Staying in line with 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 (GDP) next year, said IMF senior mission chief Peter Breuer, wrapping up a delegation visit in Colombo.
“The authorities have committed to staying within the guardrails of the programme,” Breuer 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, President Anura Kumara Dissanayake said this week. He hopes to complete the debt restructuring by the end of December.
In his first address to parliament on Thursday after his left-wing coalition swept parliamentary elections this month, Dissanayake backed the IMF deal and said there was no room to make any mistakes in managing the economy.
Fernandez said that when it comes to Sri Lanka “turning the corner”, the IMF suggested it is “not out of the woods yet”. However, inflation remains under check at about 0.7 percent.
“The economy has started registering growth, we’ve had multiple quarters achieving growth and that is a major factor given how far the economy had fallen.”
During Sri Lanka’s crisis, a severe dollar shortage sent inflation soaring 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.
The economy is expected to grow 4.4 percent this year, the first increase in three years, according to the World Bank.