World News

Sri Lanka and IMF reach preliminary agreement for $2.9 billion loan

COLOMBO, Sept 1 (Reuters) – Crisis-hit Sri Lanka has reached a preliminary agreement with the International Monetary Fund (IMF) for a loan of about $2.9 billion, the international lender said in a statement on Thursday.

“The objectives of Sri Lanka’s new Fund-supported programme are to restore macroeconomic stability and debt sustainability,” the statement said, outlining the 48-month long arrangement under the IMF’s Extended Fund Facility.

“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,” the statement added.

The debt-laden country has been seeking up to $3 billion from the IMF in a bid to escape its worst economic crisis since independence from Britain in 1948.

Sri Lankans have faced acute shortages of fuel and other basic goods for months, leaving it in political turmoil and hit by runaway inflation, which is now at almost 65% year-on-year.

“Key elements of the program are:

  • Raising fiscal revenue to support fiscal consolidation. Starting from one of the lowest revenue levels in the world, the program will implement major tax reforms. These reforms include making personal income tax more progressive and broadening the tax base for corporate income tax and VAT. The program aims to reach a primary surplus of 2.3 percent of GDP by 2024. 
  • Introducing cost-recovery based pricing for fuel and electricity to minimize fiscal risks arising from state-owned enterprises. The team welcomed the authorities’ already announced substantial revenue measures and energy pricing reforms;
  • Mitigating the impact of the current crisis on the poor and vulnerable by raising social spending, and improving the coverage and targeting of social safety net programs;
  • Restoring price stability through data-driven monetary policy action, fiscal consolidation, phasing out monetary financing, and stronger central bank autonomy that allow pursuing a flexible inflation targeting regime. A new Central Bank Act is a cornerstone of this strategy;

Read the IMF Statement here

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