The International Monetary Fund (IMF) has reached an agreement with Sri Lankan authorities to unlock the second tranche of bail-out funds worth approximately US$330 million after they were initially withheld by the global body.
Previously the IMF had withheld the second tranche of funds due to a shortfall of about 15% in revenue, a contraction of 3.1% of Sri Lanka’s real GDP, and subdued growth momentum. Though a deal was struck earlier this year, the IMF decided not to release the second $333mn tranche of a $3bn bail-out fund following a two-week visit to the island last month, stating steps to improve tax and revenue collection had fallen short of their expectations.
This week however, it released a statement that it was able to come to an agreement with the Sri Lankan government stating "macroeconomic policy reforms are starting to bear fruit and the economy is showing tentative signs of stabilization".
However, it added, "concrete steps towards addressing corruption risks and strengthening accountability will be essential for rebuilding economic confidence and making growth more robust and inclusive".
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The IMF staff-level agreement is contingent on several factors, including the completion of financing assurance reviews. These reviews will assess whether sufficient progress has been made in debt restructuring, aligning with the program's debt targets.
Key to Sri Lanka's economic recovery is securing agreements with official creditors on debt treatments consistent with program parameters and debt targets. Delays in these agreements could worsen the economic outlook for Sri Lanka, said the IMF.
Earlier this month, Sri Lanka announced a deal with China’s Exim Bank to restructure $4.2bn of debt.
