Monday, December 11, 2023

Debt-ridden Sri Lanka and the IMF establish staff level agreement for deal worth USD 2.9 million

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Staff of the International Monetary Fund (IMF) and debt-ridden Sri Lankan authorities have agreed to support Sri Lanka’s economic policies with an approximately USD 2.9 billion 48-month arrangement under the Extended Fund Facility (EFF).

From August 24 to September 1, 2022, an IMF team headed by Peter Breuer and Masahiro Nozaki was in Colombo to continue discussions about IMF assistance for Sri Lanka and the authorities’  comprehensive economic reform plan.

“The Sri Lankan authorities and the IMF team have reached a staff-level agreement to support the authorities’ economic adjustment and reform policies with a new 48-month Extended Fund Facility (EFF) with a requested access of about SDR 2.2 billion (equivalent to USD 2.9 billion),” said Breuer and Nozaki joint statement.

According to the IMF press release, Sri Lanka’s new Fund-supported programme seeks to restore macroeconomic stability and debt sustainability while safeguarding financial stability, protecting the vulnerable, and accelerating structural reforms to address corruption vulnerabilities and unleash Sri Lanka’s growth potential.

Before the IMF gives financial assistance to Sri Lanka, financing assurances to restore debt sustainability from Sri Lanka’s official creditors are required, as well as a good faith effort to establish a cooperative agreement with private creditors, according to the statement.

“The new EFF arrangement will support Sri Lanka’s program to restore macroeconomic stability and debt sustainability, while safeguarding financial stability, reducing corruption vulnerabilities and unlocking Sri Lanka’s growth potential. The agreement is subject to the approval by IMF management and the Executive Board in the period ahead, contingent on the implementation by the authorities of prior actions, and on receiving financing assurances from Sri Lanka’s official creditors and making a good faith effort to reach a collaborative agreement with private creditors. Debt relief from Sri Lanka’s creditors and additional financing from multilateral partners will be required to help ensure debt sustainability and close financing gaps,” added the statement.

There are currently food, medical, and fuel shortages in Sri Lanka as a result of the country’s greatest economic crisis in 70 years. Due to the island nation’s worst economic crisis in seven decades, imports of necessities like fuel, medication, and fertiliser were halted due to a lack of foreign exchange.

“Against this backdrop, the authorities’ programme, supported by the Fund, would aim to stabilize the economy, protect the livelihoods of the Sri Lankan people, and prepare the ground for economic recovery and promoting sustainable and inclusive growth,” said the statement.

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