The International Monetary Fund on Tuesday said Sri Lanka had secured financing assurances from China, India and all its major bilateral creditors, paving the way for the IMF board to consider approval of a long-awaited $2.9 billion bailout.
The IMF said its board will meet on March 20 to review a preliminary four-year agreement first signed in September, offering a lifeline to the South Asian country which faces its worst financial crisis since independence from Britain in 1948.
Approval is expected as the board generally does not put items on its agenda unless its members are ready to act. Sri Lanka would get access to the first tranche of money shortly after board approval, sources close to the talks said.
IMF Managing Director Kristalina Georgieva welcomed the progress made by Sri Lankan authorities in “taking decisive policy actions & obtaining financing assurances from all their major creditors, incl. China, India & the Paris Club.”
Krishna Srinivasan, director of the IMF’s Asia and Pacific Department (APD) said the financing assurances paved the way for the IMF board to consider approval of the staff-level agreement reached on September 1, 2022 for a new Extended Fund Facility.
The sources said China’s EXIM had provided a second letter offering “specific and credible” financing assurances for Sri Lanka’s debt restructuring with a specific link to the IMF program, and clear language on debt sustainability, meeting the IMF’s requirements for moving forward.
Both the letter and some initial funds should be released shortly after the March 20 board date, the sources said.
They said China had generally been more constructive in the process in recent weeks after IMF and Sri Lankan officials underscored the urgency of moving forward, given concerns about social unrest amid high inflation and food and fuel shortages.
Tuesday’s announcement comes days after the IMF praised Sri Lanka’s surprise decision on March 3 to raise interest rates and move toward a market-determined exchange rate as evidence of a commitment to reducing inflation and enacting reforms.
Sri Lanka, which has also been grappling with shortages of medicines, has been waiting for more than 180 days for approval of the loan, mostly due to IMF concerns over the quality of the initial financing assurances offered by China and other bilateral creditors, and its insistence on painful reforms.
Sri Lankan President Ranil Wickremesinghe told parliament the IMF deal was crucial to ensure other creditors could also release funds, and Sri Lanka had completed all prior actions required by the IMF.
An IMF program would give Sri Lanka foreign exchange funds to purchase sorely-needed goods and ease inflation at home. It would also unlock further funds from other important creditors, including the Asian Development Bank and the World Bank, the sources said.
