The International Monetary Fund (IMF) approved the third review of Sri Lanka’s $2.9 billion bailout on Saturday but emphasized that the nation’s economy remains fragile.
In a statement, the IMF announced it would release around $333 million, bringing the total disbursed under the bailout to approximately $1.3 billion. It noted that there are signs of an economic recovery emerging.
The lender cautioned, “The critical next steps are to complete the commercial debt restructuring, finalize bilateral agreements with official creditors along the lines of the accord with the Official Creditor Committee and implement the terms of the other agreements. This will help restore Sri Lanka’s debt sustainability.”
Sri Lanka’s worst financial crisis in over seven decades erupted in 2022 due to a severe dollar shortage, triggering inflation of 70 percent, record currency devaluation, and a 7.3 percent economic contraction. Last year, the economy shrank further by 2.3 percent.
“Maintaining macroeconomic stability and restoring debt sustainability are key to securing Sri Lanka’s prosperity and require persevering with responsible fiscal policy,” the IMF added.
The bailout, secured in March last year, has helped stabilize the economy. The Sri Lankan rupee has strengthened by 11.3 percent in recent months, and inflation has vanished, with prices declining by 0.8 percent last month.
According to the World Bank, Sri Lanka’s economy is projected to grow by 4.4 percent this year, marking its first expansion in three years.
However, the country must still finalize a $12.5 billion debt restructuring with bondholders, which President Anura Kumara Dissanayake aims to conclude by December.
Dissanayake stated that Sri Lanka would enter individual agreements with bilateral creditors, including Japan, China, and India, to complete a $10 billion debt restructuring.
The president, who was elected in September, recently led his leftist coalition to a historic victory, securing 159 seats in the 225-member parliament during last week’s general election.
