The International Monetary Fund (IMF) approved the third review of Sri Lanka’s $2.9 billion bailout on Saturday, but stressed that the country’s economy remains fragile.
The International Monetary Fund announced in a statement that it would release about $333 million, bringing the total amount disbursed under the rescue plan to about $1.3 billion. He pointed out that there are signs of an economic recovery emerging.
The lender warned, “The next critical steps are to complete the restructuring of commercial debts, finalize bilateral agreements with official creditors along the lines of the agreement with the official creditors’ committee, and implement the terms of other agreements.” This will help restore Sri Lanka’s debt sustainability.
Sri Lanka’s worst financial crisis in more than seven decades erupted in 2022 due to a severe dollar shortage, leading to 70 percent inflation, a record devaluation of the currency, and a 7.3 percent economic contraction. Last year, the economy contracted by 2.3 percent.
“Maintaining macroeconomic stability and restoring debt sustainability are essential to ensuring Sri Lanka’s prosperity and require persistence in responsible fiscal policy,” the IMF added.
The bailout, secured in March last year, helped stabilize the economy. The Sri Lankan rupee has appreciated by 11.3 percent in recent months, and inflation has disappeared, with prices falling by 0.8 percent in the past month.
According to the World Bank, the Sri Lankan economy is expected to grow by 4.4 percent this year, marking its first expansion in three years.
However, the country has yet to finalize a $12.5 billion debt restructuring with bondholders, which President Anura Kumara Dissanayake aims to complete by December.
Dissanayake said Sri Lanka would enter into 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, winning 159 seats in the 225-member parliament during last week’s general elections.