The International Monetary Fund said on Friday that discussions with Sri Lanka will continue towards reaching an agreement in the near term on the fourth review of its $2.9 billion program, after a staff team visited the island nation.
Sri Lanka, which plunged into a financial crisis due to a record shortage of dollars three years ago, has posted a strong recovery after securing a bailout from the global lender in March 2023.
But this recovery could be affected by external shocks that are creating uncertainty for the Sri Lankan economy, the IMF said in a statement.
The U.S. has imposed a 44% tariff on imported goods from Sri Lanka, which will impact about $3 billion of exports, mostly apparel. The tariff has been suspended for three months but Sri Lanka will still have to pay an additional 10% on most exports to the U.S.
“More time is needed to assess the impact of the global shock and how its implications for Sri Lanka can be addressed within the contours of its IMF-supported program,” the IMF statement added.
The need to increase power prices, avoid tax exemptions and rebuild foreign exchange reserves were also mentioned by the IMF as focus areas for Sri Lanka.
Colombo needs to complete the review and get IMF executive board approval to receive about $334 million as the fifth tranche.
Sri Lanka’s third review was delayed due to presidential elections last September.
“The key thing to understand here is none of this is because of any issues Sri Lanka has had on its internal deliverables. The U.S. tariffs will affect many countries with IMF programs,” said Raynal Wickremeratne, co-head of research at Softlogic Stockbrokers.
“So this is something that the IMF needs to go back and review to see how they will deal with this because this is not just what Sri Lanka is facing.”
Sri Lanka is in talks with the U.S. to strengthen trade relations, and is committed to substantially reducing tariff and non-tariff barriers that hinder trade and investment, its Finance Ministry said last week.
(Reuters)
