An International Monetary Fund (MF) team led by Peter Breuer, Senior Mission Chief for Sri Lanka, visited Colombo from November 17 to 23, 2024. After constructive discussions in Colombo, Mr. Breuer and Deputy Mission Chief Ms. Katsiaryna Svirydzenka issued the following statement:

“We are pleased to announce that the IMF team reached staff-level agreement with the Sri Lankan authorities on the third review under the 4-year Extended Fund Facility (EFF) arrangement. The arrangement was approved by the IMF Executive Board for a total amount of SDR 2.3 billion (about US$3 billion) on March 20, 2023.

“The staff-level agreement is subject to the approval by IMF management and the IMF Executive Board, contingent on: (i) the implementation by the authorities of prior actions including the submission of a 2025 budget consistent with program objectives; and (ii) the completion of financing assurances review, which will focus on confirming multilateral partners’ committed financing contributions and whether adequate progress has been made with the debt restructuring to give confidence that the restructuring will be concluded in a timely manner and in line with the program’s debt targets.

“Upon completion of the Executive Board review, Sri Lanka would have access to SDR 254 million (about US$333 million), bringing the total IMF financial support disbursed under the arrangement to SDR 1,016 million (about US$1,333 million).

“Sri Lanka’s ambitious reform agenda supported by the EFF is delivering commendable outcomes. The economy expanded on average by 4 percent y-o-y in the four quarters ending in June 2024. High-frequency indicators point to continued expansion across all sectors. Average headline and core inflation remained contained at 0.8 and 3.8 percent during the third quarter. Gross official reserves increased to US$6.4 billion at end-October 2024 with sizeable foreign exchange purchases by the Central Bank. Public finances have strengthened following substantial fiscal reforms.

“Program performance was strong, with all quantitative performance criteria and indicative targets (IT) for end-June 2024 met, as well as the ITs for end-September 2024, except for the IT on social spending. Most structural benchmarks due before October-2024 were either met or implemented with delay; some benchmarks are delayed because of the election cycle.

“The new government’s commitment to the program objectives has enhanced confidence and ensures policy continuity. Sustaining the reform momentum is critical to safeguarding the hard-won gains of the program and putting the economy on a path towards lasting recovery and stable and inclusive growth. Since the crisis has affected Sri Lanka’s entire population, it will be important to ensure that the benefits from economic growth are shared appropriately.

“Maintaining macroeconomic stability and restoring debt sustainability are key to securing Sri Lanka’s prosperity and require persevering with responsible fiscal policy. Continued revenue mobilization efforts and spending restraint are needed to prepare the 2025 budget in line with program parameters. Revenue administration reforms and efforts to improve tax compliance will help to ensure that the burden stemming from the crisis is shared proportionately to taxpayers’ ability to contribute. Avoiding new tax exemptions will help reduce fiscal revenue leakages, corruption risks and build much needed fiscal buffers, including for social spending and to support Sri Lanka’s most vulnerable. Maintaining cost recovery in fuel and electricity pricing and resolving legacy debts will help minimize fiscal risks arising from state-owned enterprises.

“The government has an important responsibility to protect the poor and vulnerable at this difficult time. It is important to redouble efforts to meet the program’s minimum spending target on social spending and to improve targeting, adequacy, and coverage of social safety nets, particularly Aswesuma.

“While inflation has decelerated faster than expected, continued monitoring is warranted to ensure sustained price stability and support macroeconomic stability. Against ongoing global uncertainty, it remains important to continue rebuilding external buffers through strong reserves accumulation.

“Sri Lanka’s recent Agreement in Principle with bondholders is an important milestone putting Sri Lanka’s debt on a path towards sustainability. The critical next steps are to complete the commercial debt restructuring, finalize bilateral agreements with official creditors along the lines of the accord with the Official Creditor Committee and implement the terms of the other agreements. This will help restore Sri Lanka’s debt sustainability.

“The new government’s mandate will reinvigorate governance reforms addressing corruption risks, rebuilding economic confidence, and making growth more robust and inclusive.

“The IMF team held meetings with His Excellency President and Finance Minister Anura Kumara Dissanayake, Honorable Labor Minister and Deputy Minister of Economic Development Prof. Anil Jayantha Fernando, Honorable Deputy Minister of Finance and Planning Dr. Harshana Suriyapperuma, Senior Economic Advisor Duminda Hulangamuwa, Central Bank of Sri Lanka Governor Dr. P. Nandalal Weerasinghe, Secretary to the Treasury Mr. K M Mahinda Siriwardana, and other senior government and CBSL officials. The team also met with Parliamentarians, representatives from the private sector, civil society organizations, and development partners.

“We would like to thank the authorities for the excellent collaboration.”

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President Ranil Wickramasinghe met with the visiting International Monetary Fund (IMF) delegation to discuss Sri Lanka’s ongoing economic recovery efforts, State Finance Minister Shehan Semasinghe said.

President Wickremesinghe met with the IMF delegation led by Mission Chief Peter Breuer and discussed identifying areas which need additional attention to ensure the successful completion of the third review, the Minister said.

The discussion is crucial for the timely disbursement of the fourth tranche, Semasinghe said in a post on ‘X’.

The meeting also addressed the progress of debt restructuring efforts, the Minister said.

The IMF team commended President Wickramasinghe for his commitment and leadership, which have played a pivotal role in achieving a remarkable economic turnaround in a short time, Semasinghe said.

In June, the IMF Executive Board completed the 2024 Article IV Consultation and Second Review under the 48-month Extended Fund Facility with Sri Lanka, providing immediate access to approximately US $330 million. (Newswire)

President Ranil Wickramasinghe recently met with IMF Mission Chief Peter Breuer and his team to discuss the progress of the ongoing economic program. The discussion focused on identifying areas that need additional attention to ensure the successful completion of the 3rd review,… pic.twitter.com/G3AGlySLqI

— Shehan Semasinghe (@ShehanSema) August 2, 2024

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The International Monetary Fund (IMF) says Sri Lanka’s agreements with China and other creditor nations to restructure about $10 billion in bilateral debt brought it a step closer towards restoring debt sustainability.

According to Reuters, IMF’s senior mission chief for Sri Lanka, Peter Breuer said on Thursday “We hope that there will be swift progress on reaching agreements with external private creditors in the near future”.

Sri Lanka signed deals with China and other creditor nations to restructure about $10 billion in bilateral debt on Wednesday, helping it approach the end of a restructuring process that began in September 2022 after its reserves hit record lows and forced it to default on foreign debt for the first time.

Sri Lankan officials in Paris inked the agreement with the Official Creditor Committee (OCC) co-chaired by Japan, India and France which have lent a combined $5.8 billion.

The committee is now awaiting details of a separate agreement that was signed with China EXIM Bank to rework $4.2 billion to be shared with them to ensure comparability of treatment, OCC said in a statement.

Sri Lanka, however, still needs to convince bondholders to restructure about $12.5 billion in international bonds.

Bilateral lenders said they hoped an agreement with bondholders would be “on terms at least as favourable as the terms offered by the OCC.”

The restructuring of bilateral debt agreements was one of the key conditions set by the IMF under a $2.9 billion bailout programme that helped Sri Lanka tame inflation, stabilise its currency, and improve government finances. (Newswire)

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Senior Mission Chief of the International Monetary Fund (IMF) to Sri Lanka, Peter Breuer has expressed hope that Sri Lanka would reach agreements concerning debt restructuring ahead of the second review of the program.

Addressing the media today, Peter Breuer said that a swift completion of final agreements with official creditors and resolving with external private creditors remain critical. 

He further said that Sri Lankan authorities have made commendable progress with putting debt on a path towards sustainability, stressing that the execution of the domestic debt restructuring was an important milestone. 

“The economic reform program implemented by the Sri Lankan authorities is yielding the first signs of recovery. However, challenges remain as these improvements need to translate into improved living conditions for Sri Lanka’s people,” he said. 

The Senior IMF Mission Chief also noted that swift progress towards the introduction of a progressive property tax is key to ensuring fair burden sharing while sustaining the revenue-based consolidation. 

“Property tax will help Sri Lanka to take the quantum leap to achieve the IMF programme’s goals,” he said.

On safeguarding the stability of the financial sector and bolstering its capacity to support economic growth, Peter Breuer said the authorities need to urgently finalise amendments to the Banking Act in line with their commitment under the IMF-supported program, implement the bank recapitalisation plan and strengthen the financial supervision and crisis management framework. 

A group of officials from the IMF arrived in Sri Lanka last week (Jan 11) to engage in discussions for one week, while studying the progress of economic reforms carried out within the country, following the IMF’s approval of the first review under the Extended Fund Facility (EFF) arrangement for Sri Lanka. (NewsWire)

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Sri Lanka’s in-principle pact with creditor nations to restructure its debt prepares the way for the International Monetary Fund (IMF) to consider clearing the first review of a bailout next month, the IMF’s mission chief for Sri Lanka said on Thursday.

According to Reuters, IMF’s mission chief for Sri Lanka, Peter Breuer said these understandings pave the way for the IMF Executive Board to consider the completion of the first review of Sri Lanka’s four-year Extended Fund Facility Arrangement. 

“We look forward to the Executive Board taking up this review by mid-December and the continuation of our productive collaboration with Sri Lanka in the period ahead,” he said via a statement.

The deal comes about a month after Sri Lanka’s agreement with the Export-Import Bank of China covering about $4.2 billion of outstanding debt while clearing the IMF review could trigger a second tranche of about $334 million in funds.

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 $2.9 billion in March, Sri Lanka has managed to partly stabilise its economy, bring down runaway inflation and rebuild currency reserves.

Last week, Sri Lanka’s Central Bank Governor P. Nandalal Weerasinghe said that after receiving the IMF money, Sri Lanka could get further funding from the Asian Development Bank and the World Bank, bringing the total amount to around $900 million. (NewsWire)

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