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IMF approves second evaluation of Sri Lanka’s $2.9 billion bailout, warns of financial dangers


Representational picture of the IMF brand
| Photo Credit: REUTERS

The International Monetary Fund (IMF) permitted the second evaluation of Sri Lanka’s $2.9 billion bailout, however the world lender warned the financial system stays weak regardless of indicators of restoration and urged Colombo to do extra to restructure a hefty debt burden.

In a press release on Wednesday, the IMF mentioned it’s going to launch about $336 million, taking complete funding to round $1 billion, to the crisis-hit nation and famous that indicators of an financial restoration had been rising.

However, in a word of warning, it mentioned the financial system “is still vulnerable and the path to debt sustainability remains knife-edged.”

The IMF known as for a swift finalisation of the Memorandum of Understanding (MoU) with the Official Creditor Committee (OCC), which incorporates key lenders Japan and India, and last agreements with the Export-Import Bank of China.

Sri Lanka will concentrate on reaching in-principle settlement with bondholders and is in last phases of such an settlement with the China Development Bank, state finance minister Shehan Semasinghe informed reporters.

“I cannot specify the timeline but both parties are very much interested in reaching an agreement. We are very hopeful of reaching consensus with bilateral creditors soon, possibly by the end of this month,” Mr. Semasinghe mentioned.

Cash-strapped Sri Lanka plunged into its worst monetary disaster in additional than seven a long time in 2022 with a extreme greenback scarcity sending inflation hovering to a excessive of 70%, its foreign money to file lows and its financial system contracting 7.3%.

The IMF bailout secured in March final yr helped stabilise financial situations. The rupee has risen 7% in current months and inflation slowed to 0.9% in May, although demand stays mushy and the debt restructuring talks are holding markets on edge.

The OCC and Sri Lanka are in superior talks and vetting the ultimate draft of the Memorandum of Understanding, a authorities supply with direct data of the matter informed Reuters.

Approval of the second evaluation “signifies the continued commitment to our economic recovery and growth which is critical in reinforcing economic stability and resilience,” Mr. Semasinghe wrote on platform X earlier.

Despite the financial restoration, “important vulnerabilities” related to ongoing debt restructuring, income mobilisation, reserve accumulation, and banks’ capacity to help the restoration proceed to cloud the outlook, it mentioned.

“Directors underscored that restoring fiscal sustainability requires additional revenue measures underpinning the 2025 budget, further tax administration reforms, as well as limiting tax exemptions and making them more transparent,” the assertion added.

The IMF warned of potential home dangers from “waning reform momentum,” if constant insurance policies usually are not adhered to.

Sri Lanka will maintain presidential elections earlier than mid-October, and opposition events have mentioned they could evaluation present authorities insurance policies on taxation and IMF programme targets in the event that they win.

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