IMF chief welcomes Sri Lanka’s progress in taking policy actions, securing creditor assurances

The Managing Director of the International Monetary Fund (IMF) has welcomed the progress made by the Sri Lankan authorities in taking decisive policy actions and obtaining financial assurances from all major creditors including China, India and the Paris Club.

In a statement, Kristalina Georgieva said she looks forward to presenting the IMF-supported program to the organization’s Executive Board on March 20.

“The Extended Fund Facility (EFF) will support the authorities’ program of ambitious reforms, which will help Sri Lanka emerge from its current crisis and set it on a trajectory of strong and inclusive growth,” the IMF chief said further.

Sri Lanka has closed in on getting a sign-off on the long-awaited bailout package of USD 2.9 billion from the IMF upon receiving fresh financial assurances from China on restructuring the island’s debt.

Addressing the parliament this morning, President Ranil Wickremesinghe said a letter of agreement, signed by him as the finance minister and the Central Bank Governor Dr. Nandalal Weerasinghe, was forwarded to the IMF soon after receiving assurances from the Export-Import (EXIM) Bank of China last night.

However, the Deputy Ambassador of China to Sri Lanka, Hu Wei officially handed over the financial assurance letter issued by the EXIM Bank of China to Sri Lanka’s Finance Ministry Secretary, Mahinda Siriwardana this afternoon at the Presidential Secretariat.

The envoy noted that large-scale Chinese companies are looking forward to visiting Sri Lanka in the near future to explore new investment opportunities.

This evening, the IMF confirmed that Sri Lanka has now secured financial assurances from all major bilateral creditors, paving way for the IMF’s executive board to consider green-lighting the EFF for the island nation grappling with its worst economic crisis since independence from Britain in 1948.

The IMF said its executive board will meet on March 20 to review a preliminary staff-level agreement first signed in September, offering a lifeline to Sri Lanka with a 48-month arrangement under the EFF of about USD 2.9 billion.

The objectives of this IMF-supported program are to restore macroeconomic stability and debt sustainability, while safeguarding financial stability, protecting the vulnerable, and stepping up structural reforms to address corruption vulnerabilities and unlock Sri Lanka’s growth potential.

“This paves the way for consideration by the IMF’s Board on March 20 the approval of the Staff Level Agreement reached on September 1, 2022 for financing under an Extended Fund Facility,” Krishna Srinivasan, director of the IMF’s Asia and Pacific Department (APD) said in a statement.

The IMF says its board’s approval of a new loan for Sri Lanka would help catalyse financing from other creditors, including the World Bank and the Asian Development Bank.

“The arrangement will support the authorities’ program of ambitious reforms, that they have already embarked upon, which will help Sri Lanka emerge from its current crisis and set it on a trajectory of strong and inclusive growth,” Srinivasan added.

The announcement came days after the IMF praised Sri Lanka’s surprise decision on March 3 to raise interest rates and move toward a market-determined exchange rate as evidence of a commitment to reducing inflation and enacting reforms.

-with inputs from agencies