IMF Approves Sri Lanka’s Third Bailout Review

November 25, 2024

The International Monetary Fund (IMF) has recently approved the third review of Sri Lanka’s $2.9 billion bailout on November 23, 2024. The country’s economy remains fragile despite the approval and will release approximately $333 million, raising total funding to about $1.3 billion.

Economic Context

Sri Lanka faced its worst financial crisis in over 70 years in 2022, which involved a severe shortage of dollars and skyrocketing inflation, which peaked at 70%. The economy shrank by 7.3% during the crisis and contracted by 2.3% the following year.

Signs of Recovery

The IMF has noted signs of economic recovery in Sri Lanka. The Sri Lankan rupee has appreciated by 11.3% in recent months. Inflation has dropped to zero, and prices decreased by 0.8% last month. The economy is projected to grow by 4.4% this year, marking the first growth in three years.

Key Requirements

The IMF emphasised the need for Sri Lanka to complete essential steps. These include restructuring commercial debt and finalising agreements with official creditors. Adhering to responsible fiscal policies is crucial for restoring debt stability.

Debt Restructuring

Sri Lanka must complete a $12.5 billion debt restructuring with bondholders. President Anura Kumara Dissanayake aims to finalise this restructuring in December. The country will negotiate debt agreements with bilateral creditors, including Japan, China, and India, as part of a $10 billion restructuring plan.

Important Facts for Exams:
IMF: The International Monetary Fund provides financial assistance to countries. It aims to ensure global monetary cooperation. It also promotes sustainable economic growth and reduces poverty worldwide.
Debt Restructuring: Debt restructuring involves altering the terms of existing debt. It can include extending repayment periods or reducing interest rates. This process aims to improve financial stability.
Sri Lankan Rupee: The Sri Lankan rupee is the currency of Sri Lanka. It has appreciated by 11.3% recently. Currency stability is crucial for economic recovery and growth.

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