IMF’s first program review begins today; Sri Lanka hopeful of ‘promising pathway’ for growth

The first review of the International Monetary Fund’s Extended Fund Facility (EFF) for Sri Lanka is slated to commence today (Sept. 14).

This review is a significant milestone towards securing the second tranche of and enhancing confidence in the island nation’s economic recovery, Finance State Minister Shehan Semasinghe, in a post on X (formerly Twitter).

Successful completion of the first IMF review puts Sri Lanka in a strong position for economic recovery and sets a promising pathway for growth in 2024, he added.

A delegation of the Washington-based global lender will arrive in Colombo today for the review which is scheduled to go on until September 27.

Sri Lanka, grappling with its worst financial crisis in more than seven decades after its foreign exchange reserves depleted to record lows, managed to secure a bailout package of nearly USD 3 billion in March 2023, after reaching a Staff-Level Agreement in September 2022.

The IMF’s executive board approved a 48-month arrangement of SDR 2.286 billion (approximately USD 3 billion) supported by the EFF program to help Sri Lanka ride out its economic crisis.

It aims to restore Sri Lanka’s macroeconomic stability and debt sustainability, mitigating the economic impact on the poor and vulnerable, safeguarding financial sector stability, and strengthening governance and growth potential.

This EFF program allows Sri Lanka to access financing of up to USD 7 billion from the international financial institutions (IFIs) and multilateral organizations.

Under the IMF program, Sri Lanka has set a target of restructuring its debt for the next 10 years and reducing its debt-to-GDP ratio from the current 120% to about 95% by 2032. However, Sri Lanka still needs to complete talks with key bilateral creditors, including Japan, China and India, before it can take the next step to restructure its debt.

The first review will take into consideration the program’s performance until end-June and if approved by both the staff and the executive board, it would allow a disbursement of nearly USD 338 million.

Receipt of the first tranche of the EFF which amounted to USD 333 million immediately followed the IMF executive board’s approval of the bailout package in March.

An IMF delegation visited the island nation in May 2023 and said keeping up the economic reform momentum and ensuring timely implementation of the IMF-supported program’s commitments are key for Sri Lanka to emerge from the economic crisis.

The IMF officials also said the overall macroeconomic and policy environment remains challenging despite the macroeconomic situation in Sri Lanka showing tentative signs of improvement following strong policy efforts, with inflation moderating, the exchange rate stabilizing, and the Central Bank rebuilding reserves buffers.

-with inputs from agencies