The completion of the first review allows for an immediate disbursement of US$337 million, bringing the total IMF financial support disbursed so far to US$670 million.
The Executive Board of the International Monetary Fund (IMF) completed the first review under the 48-month Extended Fund Facility with Sri Lanka on Saturday. This paves the way for IMF to provide the island nation with access to about US$337 million to support its economic policies and reforms following on the aftermath of the economic crisis the island nation faced last year.
Following the Executive Board discussion on Sri Lanka, Mr. Kenji Okamura, Deputy Managing Director, said, “(the) macroeconomic policy reforms are starting to bear fruit and the economy is showing tentative signs of stabilization, with rapid disinflation, significant revenue-based fiscal adjustment, and reserves build-up.”
The completion of the first review allows for an immediate disbursement of US$337 million, bringing the total IMF financial support disbursed so far to US$670 million.
The total amount of Sri Lanka’s EFF Arrangement is US$3 billion as of the time of programme approval on March 20, 2023. The programme supports Sri Lanka’s efforts to restore macroeconomic stability and debt sustainability, safeguard financial stability, and enhance growth-oriented structural reforms.
Senior Mission Chief for Sri Lanka, Peter Breuer noted the encouraging signs regarding the program’s impact on stabilizing the economy, particularly in policy-oriented variables and fiscal areas, according to a statement by the president’s media division.
The IMF said there was positive surprise on the country completing the first review under its program, during a meeting with President Ranil Wickremesinghe.
Breuer told Wickremesinghe, “With respect to revenue collection, in fact, we had a meeting that showed very encouraging numbers that basically highlight that the policies you implemented beginning from after we reached the staff level agreement in the second half of 2022 are working, that they have the intended effect, that you’re collecting the revenue that’s needed to address the cause of the crisis. So, that really is very good news.”
Commendable progress
The IMF’s website notes that, “Sri Lanka’s performance under the programme was satisfactory. All but one performance criteria and all but one indicative targets were met at end-June,” it said.
“Most structural benchmarks due by end-October 2023 were either met or implemented with delay. Notably, the authorities published the Governance Diagnostic Report, making Sri Lanka the first country in Asia to undergo the IMF Governance Diagnostic exercise,” the IMF’s statement on its website reads.
According to the IMF, the Sri Lankan authorities have made commendable progress toward restoring debt sustainability, raising revenue, rebuilding reserves buffers, reducing inflation, and safeguarding financial stability. Strong commitment to improving governance and protecting the poor and vulnerable remains critical.
The upcoming formal IMF reviews consultations will focus on the new public financial management law, potential conflicts with the public-private partnership law, electricity tariffs and urgent preparations for property taxation.
The IMF pointed out the urgency of addressing fiscal matters, including amendments to the Banking Act and recapitalizing the banking sector.
Further discussions between Sri Lanka and the IMF are expected to delve deeper into these key areas among other issues.
