The International Monetary Fund (IMF)’s Executive Board on Friday approved a bailout package of about $ 1.5 billion (SDR 1.1 billion) for Sri Lanka, which witnessed a steep fall in the balance of payments last year.
The package will be in the form of a 36-month extended arrangement under the Extended Fund Facility (EFF) to support Sri Lanka’s economic reform agenda.
The Executive Board’s decision will enable an immediate disbursement of SDR 119.894 million (about US$ 168.1 million), and the remainder will be available in six installments subject to quarterly reviews.
To meet BoPs
“The IMF arrangement aims to meet balance of payments needs arising from a deteriorating external environment and pressures that may persist until macroeconomic policies can be adjusted. It is also expected to catalyse an additional $650 million in other multilateral and bilateral loans, bringing total support to about $2.2 billion [over and above existing financing arrangements],” an official release said.
In a statement, Min Zhu, IMF’s Deputy Managing Director and Acting Chair, explained that despite positive growth momentum, Sri Lanka’s economy was beginning to show “signs of strain from an increasingly difficult external environment and challenging policy adjustments. The new government’s economic agenda, supported by the Extended Fund Facility, provides an important opportunity to re-set macroeconomic policies, address key vulnerabilities, boost reserves, and support stability and resilience.”
Return to fiscal consolidation
A return to fiscal consolidation, targeting a reduction in the overall fiscal deficit to 3.5 percent of GDP by 2020, would be the “linchpin” of the reform programme. Rebuilding tax revenues through a comprehensive reform of both tax policy and administration would be the key in this regard, supplemented by steps toward more effective control over expenditures and putting state enterprise operations on a more commercial footing, the IMF official added.
