The International Monetary Fund (IMF) has approved the third review of Sri Lanka's $2.9 billion bailout, announcing a release of approximately $333 million. This funding raises the total disbursed to $1.3 billion, amidst indications of an economic recovery in the South Asian nation.
Despite these positive signs, the IMF cautioned that Sri Lanka's economy remains vulnerable. The country is required to complete a $12.5 billion bondholder debt restructuring and a $10 billion debt reorganization with bilateral creditors, including Japan, China, and India, to advance the program.
Sri Lanka sought IMF assistance after defaulting on its $46 billion external debt in April 2022, following a severe economic crisis that led to widespread protests and the resignation of then-President Gotabaya Rajapaksa. The IMF’s bailout, secured in March 2023, has been instrumental in stabilizing the economy, which previously faced dire shortages of essential imports.
IMF senior mission chief Peter Breuer emphasized the importance of adhering to tax revenue requirements and continuing reforms of state-owned enterprises to achieve a primary surplus target of 2.3 percent of gross domestic product (GDP) next year. An interim budget is anticipated to be presented to parliament in December, with hopes of completing debt restructuring by year-end.
In recent parliamentary discussions, President Anura Kumara Dissanayake expressed support for the IMF deal, stressing the need for careful economic management. While inflation is currently under control at about 0.7 percent, the IMF noted that Sri Lanka is not yet fully recovered from its economic challenges.
After experiencing a severe contraction of 7.3 percent during the height of the crisis, Sri Lanka's economy is projected to grow by 4.4 percent this year, marking the first increase in three years, according to the World Bank.