IMF Executive Board approves US $ 3bn bailout for Sri Lanka

• First tranche of facility of about US $ 333mn to be disbursed immediately
• Says Board approval will also “catalyse financial support from other development partners”
• IMF chief urges SL to maintain momentum of ongoing progressive tax reforms to restore fiscal and debt sustainability 
• Stresses that SL should stay committed to multi-pronged disinflation strategy to safeguard credibility of its inflation targeting regime
• Highlights need for implementing a bank recapitalisation plan and strengthening financial supervision
• Calls for revamping of SL’s anti-corruption legislation to tackle graft

The International Monetary Fund (IMF) yesterday said its Executive Board approved a US $ 3 billion financing for Sri Lanka under the Extended Fund Facility (EFF), which will be disbursed within a period of four years. 
The multilateral lender said the first tranche of the facility of about US $ 333 million would be disbursed immediately. 

This is Sri Lanka’s 17th IMF programme since its independence in 1948.
A statement issued by the IMF said the Board approval would also “catalyse financial support from other development partners”.

“Sri Lanka has been hit hard by a catastrophic economic and humanitarian crisis. The economy is facing significant challenges stemming from pre-existing vulnerabilities and policy missteps in the lead up to the crisis, further aggravated by a series of external shocks,” it added.

The IMF said the EFF-supported programme aims to restore Sri Lanka’s macroeconomic stability and debt sustainability, mitigate the economic impact on the poor and vulnerable, safeguard financial sector stability and strengthen governance and growth potential.

Meanwhile, IMF Managing Director Kristalina Georgieva said Sri Lanka should maintain the momentum of ongoing progressive tax reforms to restore fiscal and debt sustainability while protecting the poor and vulnerable.

 She also pointed out that for the fiscal adjustments to be successful, sustained fiscal institutional reforms on tax administration, public financial and expenditure management and energy pricing remain critical.

She further said following the IMF Board approval, the Sri Lankan authorities and creditors should make swift progress towards restoring debt sustainability consistent with the IMF-supported programme.

“The authorities’ commitments to transparently achieve a debt resolution, consistent with the programme parameters and equitable burden sharing among creditors in a timely fashion, are welcome,” she said.

Meanwhile, Georgieva stressed that Sri Lanka should stay committed to the multi-pronged disinflation strategy to safeguard the credibility of its inflation targeting regime.

“As the market regains confidence, the authorities’ recent introduction of greater exchange rate flexibility will help to rebuild the reserve buffer.”

Highlighting the need for a sound banking system, she said implementing a bank recapitalisation plan and strengthening financial supervision and crisis management framework are crucial to ensure financial sector stability.

Meanwhile, the IMF chief also called for revamping of Sri Lanka’s anti-corruption legislation to tackle graft. 
“A more comprehensive anti-corruption reform agenda should be guided by the ongoing IMF governance diagnostic mission that conducts an assessment of Sri Lanka’s anti-corruption and governance framework. The authorities should step up growth-enhancing structural reforms with technical assistance support from development partners,” she said.

She also pointed out that for the fiscal adjustments to be successful, sustained fiscal institutional reforms on tax administration, public financial and expenditure management and energy pricing remain critical.

She further said following the IMF Board approval, the Sri Lankan authorities and creditors should make swift progress towards restoring debt sustainability consistent with the IMF-supported programme.

“The authorities’ commitments to transparently achieve a debt resolution, consistent with the programme parameters and equitable burden sharing among creditors in a timely fashion, are welcome,” she said.

Meanwhile, Georgieva stressed that Sri Lanka should stay committed to the multi-pronged disinflation strategy to safeguard the credibility of its inflation targeting regime.

“As the market regains confidence, the authorities’ recent introduction of greater exchange rate flexibility will help to rebuild the reserve buffer.”

Highlighting the need for a sound banking system, she said implementing a bank recapitalisation plan and strengthening financial supervision and crisis management framework are crucial to ensure financial sector stability.

Meanwhile, the IMF chief also called for revamping of Sri Lanka’s anti-corruption legislation to tackle graft. 
“A more comprehensive anti-corruption reform agenda should be guided by the ongoing IMF governance diagnostic mission that conducts an assessment of Sri Lanka’s anti-corruption and governance framework. The authorities should step up growth-enhancing structural reforms with technical assistance support from development partners,” she said.