IMF Executive Board set to take up Sri Lanka’s first review today

Release time:2023-12-12 Publisher:South Asia Development

The Executive Board of the International Monetary Fund (IMF) is set to take up for consideration the first review of the 48-month Extended Fund Facility (EFF) Arrangement for Sri Lanka on today (Dec12).

This was previously mentioned in the global lender’s Executive Board’s calendar, which mentioned that the first review of Sri Lanka’s extended arrangement under the EFF, request for waiver of nonobservance of performance criterion, request for modification of performance criteria, financing assurances review, and rephasing of access would be taken up for consideration today.

Sri Lanka plunged into its worst financial crisis in seven decades last year after its foreign exchange reserves dwindled to record lows.

But since locking down the IMF bailout of USD 2.9 billion in March, the South Asian island nation has managed to partly stabilise its economy, bring down runaway inflation and rebuild currency reserves.

An IMF mission visited the island nation from September 14-27 for the first review of the EFF-supported economic adjustment program.

In October, IMF and Sri Lanka reached a staff-level agreement on economic policies to conclude the first review of the EFF-supported program, which is expected to unlock the second tranche – which amounts to about USD 330 million in financing – once the review is approved by the IMF Management and Executive Board. This will bring the total IMF financial support disbursed under the arrangement about USD 660 million.

Sri Lanka has now reached in-principle deals with the Export-Import (Exim) Bank of China, its largest bilateral creditor, and the Official Creditor Committee (OCC) to restructure its debts.

On November 29, the Sri Lankan government and the OCC revealed that they have reached an agreement in principle on the financial terms of debt treatment. The in-principle deal covers approximately USD 5.9 billion of outstanding public debt and consists of a mix of long-term maturity extension and reduction in interest rates.

Following the launch of a common platform in April 2023 for talks among bilateral creditors to coordinate restructuring of Sri Lanka’s debt, the OCC – co-chaired by India, Japan and France (as the chair of the Paris Club) – was formally formed on May 09 with 17 countries to respond to the Sri Lankan authorities’ request for a debt treatment. Since its formation, the OCC has engaged extensively with the Sri Lankan authorities, the IMF, the World Bank as well as China, and Sri Lanka’s private creditors.

The deal between OCC and Sri Lanka came about a month after the island nation’s agreement with the China’s Exim Bank covering about USD 4.2 billion of outstanding debt.

The IMF earlier said Sri Lanka’s in-principle pact with creditor nations and China’s Exim Bank to restructure its debt prepares the way for the global lender to consider clearing the first review of the bailout.