The International Monetary Fund (IMF) Executive Board has completed the third review of Sri Lanka’s 48-month Extended Fund Facility (EFF) arrangement, approving an immediate disbursement of approximately $334 million (SDR 254 million).
This brings the total IMF financial support disbursed to Sri Lanka to about $1.34 billion (SDR 1.02 billion) under the $3 billion program.
The IMF commended Sri Lanka’s strong performance under the program, noting that all quantitative targets for end-December 2024 were met, except for the indicative target on social spending. Most structural benchmarks due by end-January 2025 were either met or implemented with delay.
The recent successful completion of the bond exchange was highlighted as a major milestone in restoring debt sustainability.
Key highlights from the IMF statement:
– Economic Recovery: Sri Lanka’s economy has shown remarkable recovery, with growth averaging 4.3% since the third quarter of 2023. By end-2024, real GDP had recovered 40% of the losses incurred between 2018 and 2023.
– Inflation and Reserves: Inflation remains low, revenue collection is improving, and foreign reserves continue to accumulate.
– Reform Momentum: Sustaining the reform agenda is critical to ensure macroeconomic stability, debt sustainability, and long-term inclusive growth. The IMF emphasized that there is no room for policy errors.
– Revenue Mobilization: Strengthening tax compliance and avoiding tax exemptions are essential for fiscal sustainability and continued provision of essential services.
– Social Spending: Meeting social spending targets and reforming the social safety net are crucial to protect the poor and vulnerable.
– Debt Restructuring: Progress in debt restructuring, including the successful bond exchange, is a significant step towards restoring debt sustainability. Finalizing agreements with bilateral creditors remains a priority.
– Monetary Policy: Maintaining price stability, prohibiting monetary financing, and safeguarding Central Bank independence are key priorities.
– Structural Reforms: Addressing non-performing loans, improving governance in state-owned banks, and enhancing insolvency frameworks are vital for reviving credit growth and supporting economic recovery.
IMF Deputy Managing Director Kenji Okamura had stated :
“Reforms in Sri Lanka are bearing fruit, and the economic recovery has been remarkable. Sustaining the reform momentum is critical to ensure macroeconomic stability, debt sustainability, and promote long-term inclusive growth. There is no room for policy errors.”
The IMF’s continued support underscores the importance of Sri Lanka’s commitment to reforms as the country works towards lasting economic recovery and stability.
