IMF reaches $2.9 billion loan agreement for Sri Lanka as economy collapses

The International Monetary Fund (IMF) has reached a Staff-Level Agreement with Sri Lanka on an Extended Fund Facility Arrangement as reported on Thursday, September 1.

The agreement was reached after an IMF mission to Colombo, Sri, Lanka led by Mr. Peter Breuer and Mr. Masahiro Nozaki from August 24 to September 1, 2022.

At the end of the mission, Messrs. Breuer and Nozaki issued the following statement:

“The Sri Lankan authorities and the IMF team have reached staff-level agreement to support the authorities’ economic adjustment and reform policies with a new 48-month Extended Fund Facility (EFF) with a requested access of about SDR 2.2 billion (equivalent to US$2.9 billion).”

“The new EFF arrangement will support Sri Lanka’s program to restore macroeconomic stability and debt sustainability, while safeguarding financial stability, reducing corruption vulnerabilities and unlocking Sri Lanka’s growth potential. ”

“The agreement is subject to the approval by IMF management and the Executive Board in the period ahead, contingent on the implementation by the authorities of prior actions, and on receiving financing assurances from Sri Lanka’s official creditors and making a good faith effort to reach a collaborative agreement with private creditors.”

“Debt relief from Sri Lanka’s creditors and additional financing from multilateral partners will be required to help ensure debt sustainability and close financing gaps.

“Sri Lanka has been facing an acute crisis. Vulnerabilities have grown owing to inadequate external buffers and an unsustainable public debt dynamic.”

“The April debt moratorium led to Sri Lanka defaulting on its external obligations, and a critically low level of foreign reserves has hampered the import of essential goods, including fuel, further impeding economic activity.”

“The economy is expected to contract by 8.7 percent in 2022 and inflation recently exceeded 60 percent. The impact has been disproportionately borne by the poor and vulnerable.”

“Against this backdrop, the authorities’ program, supported by the Fund, would aim to stabilize the economy, protect the livelihoods of the Sri Lankan people, and prepare the ground for economic recovery and promoting sustainable and inclusive growth.”

“We would like to thank the authorities for their candid approach and warm hospitality and are looking forward to continuing our engagement in support of Sri Lanka and its people.”

The news follows reports of major riots in Sri Lanka showing the escalating tensions of the nation amidst its current economic crisis.

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