The International Monetary Fund revived
its $2.9 billion bailout for Sri Lanka after the South Asian nation clinched a
debt restructuring deal with China, its biggest official lender.
The IMF said its board had completed the
first review of Sri Lanka’s rescue package known as the Extended Fund facility
(EFF) and released the second tranche of $337 million to support economic
policies and reforms.
Sri Lanka had expected the progress
review to be completed by September, but it was held up pending financial
assurances from China, which holds 52 per cent of the island’s bilateral debt.
IMF Sri Lanka mission chief Peter Breuer
said Colombo had shared China’s debt-restructuring offer with the IMF on a “strictly
confidential basis.”
However, it fell within the IMF’s debt
sustainability targets for the island, he added.
He said policy reforms were starting to
bear fruit and the economy was showing signs of stabilization, but the key to a
full and swift recovery was sustaining reform momentum.
“We encourage the authorities to
continue to build on these hard-won gains and further advance revenue
mobilization,” Breuer said.
Colombo welcomed the latest IMF cash
injection and reiterated its commitment to maintain unpopular reforms to raise
taxes, scrap energy subsidies and privatize state enterprises.
“We are grateful to the cooperation of
the official creditor committee… for agreeing in principle to the debt
restructuring process,” said Junior Finance Minister Shehan Semasinghe.
The island nation of 22 million people
defaulted on its $46 billion external debt last year after running out of
foreign exchange to finance imports such as food, fuel and medicines.
The country went to the IMF and secured
the rescue loan spread over four years with the first instalment of $330
million paid in March.
With Tuesday’s decision, Sri Lanka has
received about $670 million of the full loan of nearly $3.0 billion.
‘Commendable Progress’
Last month, Colombo announced it had
struck an “agreement in principle” with its lenders, including China, to
restructure nearly $6 billion in bilateral loans, a key to pressing ahead with
IMF funding.
China had been reluctant to take a
haircut on its loans and instead had offered to extend the terms and lower
interest rates.
The IMF said Sri Lankan authorities had
made “commendable progress” toward restoring debt sustainability, raising
revenue, rebuilding reserves, reducing inflation and safeguarding financial
stability.
Inflation, which peaked at nearly 70 per
cent in September last year, had eased to 1.5 per cent last month.
AFP
