As the nation searches for a solution to its worst economic crisis in decades, Sri Lanka and the International Monetary Fund (IMF) have achieved a preliminary agreement for a loan of roughly $2.9 billion, the global lender announced on Thursday.
The deal, which was first reported in the media on Wednesday, is reliant on Sri Lankan authorities carrying out previously agreed-upon steps and needs to be approved by IMF management and its executive board.
Peter Breuer, a top IMF official, told reporters in Colombo, Sri Lanka’s economic hub, that the staff level agreement was just the start of a long journey for Sri Lanka.
Authorities have already started the reform process, which must go on resolutely.
In addition to making sure attempts are made to establish a cooperative arrangement with private creditors, the IMF needs Sri Lanka’s government creditors to provide funding assurances.
To help maintain debt sustainability and fill financing gaps, the IMF stated in a statement that “debt relief from Sri Lanka’s creditors and extra finance from multilateral partners will be necessary.”
The 48-month IMF programme aims to increase government revenue to support fiscal consolidation, implement new fuel and power pricing, increase social expenditure, strengthen central bank authority, and replenish depleted foreign reserves.
“The proposal will put into place significant tax reforms starting from one of the lowest revenue levels in the whole globe. These changes include broadening the tax base for corporate income tax and VAT as well as making personal income tax more progressive “The declaration read.
By 2024, “the programme seeks to achieve a primary surplus of 2.3 percent of GDP,” it continued.
The IMF’s remarks, according to Udeeshan Jonas, chief strategist at the Sri Lankan investment bank CAL Group, were generally favourable.
They expressed satisfaction with the fiscal decisions we made, saying that the revenue measures we took were significant.
Furthermore, Jonas stated that he anticipated significant austerity measures and job cutbacks at loss-making state-owned firms, despite the fact that welfare funds for Sri Lanka’s poorest citizens will be preserved.
He stated, “Privatization is on the table and I believe it will most likely occur by next year.”
The interim budget was submitted on Tuesday by President Ranil Wickremesinghe, who also serves as the nation’s finance minister, in an effort to seal the deal with the IMF.
Japan has promised to facilitate negotiations with Sri Lanka’s other major creditors, including its rivals in the region, India and China, in order to restructure its debt, which must be reduced by roughly $30 billion.
Breuer stated that it would be in the best interest of all creditors to work together, adding that if creditors were unwilling to offer assurances, Sri Lanka’s crisis would worsen and its ability to make payments would be compromised.
The majority of Sri Lanka’s $19 billion in government bonds, which are currently categorised as in default, are held by foreign banks and asset managers, with whom Sri Lanka will also need to come to an agreement.
In an effort to recover from its biggest economic crisis since gaining independence from Britain in 1948, the heavily indebted nation has requested up to $3 billion from the IMF.
For months, Sri Lankans have experienced severe shortages of petrol and other necessities, which has caused political unrest and driven inflation to an all-time high of about 65% on an annual basis.
