IMF agrees to unlock EFF second tranche for Sri Lanka after board approval

The International Monetary Fund (IMF) reached an understanding with Sri Lankan authorities over the disbursement of the US$ 330 million second tranche of its $3 billion Extended Fund Facility to the country, the fund announced on Thursday.

IMF staff and the Sri Lankan authorities have entered into a stafflevel agreement on economic policies to conclude the first review of the 48-month EFF-supported programme following executive board approval.

Sri Lanka will have access to second instalment of the EFF facility in financing once the review is approved by IMF Management and IMF Executive Board, an IMF media release revealed.

Macroeconomic policy reforms are starting to bear fruit and the economy is showing tentative signs of stabilisation. Sustaining the reform momentum and addressing governance weaknesses and corruption vulnerabilities are critical to put the economy on a path towards lasting recovery and stable and inclusive growth.

The clearance of the second installment on the loan package will be approved during the IMF board meeting to be held in November or early December.

According to IMF sources, to move forward, they must be convinced that debt sustainability can be regained.

This conviction is based on the expectation that negotiations will lead to debt treatments which align with the debt targets set at the beginning of the programme in March.

A senior official of the Finance Ministry noted that to achieve this objective, it was essential to have appropriate tax policies and tax administration systems in budget 2024 proposals.

However, these reforms alone are insufficient for Sri Lanka to bridge the gap and move away from being one of the countries with the lowest tax revenue in the world.

After concluding domestic debt restructuring and agreeing tentative terms with the China Exim bank, the focus is now on how much progress the nation can make in talks with other official creditors, as well as bondholders who submitted a proposal that included a 20 per cent haircut and new “macro-linked bonds recently.