Sri Lanka Anticipates Second Review Of $2.9 Billion IMF Bailout In Early 2024

The IMF’s executive board approved the first review on Tuesday, injecting approximately $337 million into Sri Lanka’s struggling economy.

In a bid to address its worst financial crisis in decades, Sri Lanka is eagerly anticipating the completion of the second review of its $2.9 billion bailout package with the International Monetary Fund (IMF) during the first half of 2024. A government official emphasized that this timeline is contingent upon the successful fulfillment of debt restructuring and revenue targets outlined in the program.

The IMF’s executive board approved the first review on Tuesday, injecting approximately $337 million into Sri Lanka’s struggling economy. The island nation has been grappling with a severe financial downturn marked by soaring inflation, currency depreciation, and critically low foreign reserves since last year, constituting its most severe crisis since gaining independence in 1948.

With a total of about $670 million disbursed so far, the IMF remains a key player in Sri Lanka’s recovery efforts. A scheduled visit by an IMF delegation to Sri Lanka in March is anticipated to precede the finalization of the second review, expected approximately two months later, as stated by Peter Breuer, the senior mission chief for Sri Lanka, during an online press briefing in Washington.

However, challenges lie ahead for Sri Lanka, requiring agreements with official creditors such as China, Japan, and India, as well as resolutions with external private creditors for foreign debt restructuring before concluding the review process. Breuer acknowledged positive signs of economic recovery and projected growth in the coming year but emphasized the need for sustained reforms to safely emerge from the crisis.

Despite signs of stabilization post-bailout, Sri Lanka’s economy is projected to contract by 3.6% this year, with an optimistic growth estimate of 1.8% in 2024 as economic expansion gains momentum. To stay on the IMF program path, Sri Lanka must bolster its tax revenue, reform loss-making state enterprises, and fortify reserves.

Regarding debt restructuring, China, Sri Lanka’s largest bilateral creditor, may not participate in the Official Creditor Committee, given the completion of a core part of the restructuring. China previously reached an agreement in principle to rework around $4.2 billion of debt owed to China EXIM Bank in October.

Following the positive development of clearing the first review under the IMF bailout program, Sri Lanka’s sovereign dollar bonds experienced an uptick in trading, with shorter-dated notes demonstrating more substantial gains. The bonds were observed trading between 49.1 to 50.4 cents in the dollar, according to Tradeweb data.