COLOMBO
Sri Lanka has reached a preliminary agreement with the International Monetary Fund (IMF) for a loan of about $2.9 billion, the global lendaer said on Thursday, as the country seeks a way out its worst economic crisis in decades.
The agreement, which Reuters first reported on Wednesday, is subject to approval by IMF management and its executive board, and is contingent on Sri Lankan authorities following through with previously agreed measures.
“The staff level agreement is only the beginning of a long road for Sri Lanka,” senior IMF official Peter Breuer told reporters in the commercial capital Colombo. “Authorities have already begun the reform process and it must continue with determination.”
The IMF requires receiving financing assurances from Sri Lanka’s official creditors, besides ensuring efforts are made 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,” the IMF said in a statement.
The IMF programme, spread over 48 months, will aim to raise government revenue to support fiscal consolidation, introduce new pricing for fuel and electricity, hike social spending, bolster central bank autonomy and rebuild depleted foreign reserves.
“Starting from one of the lowest revenue levels in the world, the programme 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 statement said.
“The programme aims to reach a primary surplus of 2.3 percent of GDP by 2024,” it added.
Udeeshan Jonas, chief strategist at Sri Lankan investment bank CAL Group, said that the IMF’s comments were largely positive.
“They said the revenue measures that we’ve taken have been substantial (and) they’re happy with what we’ve done from a fiscal perspective,” he said.
And although welfare budgets for Sri Lanka’s poorest would be protected, Jonas said he expected significant austerity measures and job cuts at loss-making state-owned enterprises.
“Privatisation is on the cards,” he said, “and I think it will happen probably by next year.”
