Sri Lanka has made 'strong progress' on debt restructuring front, says IMF

Sri Lanka's macroeconomic policy reforms have started to "bear fruit" and the country is expected to reach agreements with external commercial creditors soon, the IMF has said ahead of the second review of it's $2.9 billion bailout programme to the cash-strapped country.

Addressing a press conference on Friday, International Monetary Fund (IMF) Communication Department Director Julie Kozack asserted that Sri Lanka has made "sufficiently strong progress on the debt restructuring front".

She said that the island nation's programme performance is "strong", with most quantitative and structural conditionality for the second review met or implemented with delay, adding that reforms are still ongoing in some areas.

The second review of the IMF's Extended Fund Facility under the $2.9 billion bailout of Sri Lanka has been set for June 12.

Kozack confirmed that the IMF's Executive Board will meet to discuss the second review and the Article IV Consultation.

Under Article IV of the IMF's Articles of Agreement, the global lender holds bilateral discussions with members, typically every year, with a staff team visiting the country, collecting economic and financial information, and discussing with officials the country's economic developments and policies.

"In Sri Lanka, we do see macroeconomic policy reform starting to bear fruit," Kozack said, adding that "commendable outcomes" include rapid disinflation, robust reserve accumulation, and initial signs of economic growth while preserving the financial system's stability.

She said that Colombo's next steps on debt restructuring are to conclude negotiations with external commercial creditors and implement agreements in principle with the official creditors.

Kozack said Sri Lanka's domestic debt operations have largely been completed, and debt restructuring discussions are continuing.

"The authorities have been holding extensive discussions with external official creditors regarding an MOU (memorandum of understanding) with the official creditor committee and the final agreements with the Export-Import Bank of China," she said, adding that talks with the China Development Bank are also at an advanced stage.

"There is a strong expectation that agreements with external commercial creditors consistent with programme parameters will be reached soon. So, overall, we assess that there has been sufficiently strong progress on the debt restructuring front," she said.

In March, the Washington-based IMF said it reached a staff-level agreement with Sri Lanka for the next phase, enabling access to $337 million from the nearly $3 billion bailout approved in 2023 for the cash-strapped country. Two tranches of $330 million each were released in March and December 2023.

In April 2022, Sri Lanka declared its first-ever sovereign default since gaining independence from Britain in 1948.