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(Bloomberg) — The International Monetary Fund reached a staff level agreement with Sri Lanka, paving the way toward unlocking the next tranche of funds under an existing $3 billion loan program.
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The conclusion of the fourth review will give the nation access to about $344 million after approval from the IMF’s executive board, the Washington-based lender said in a statement on Friday.
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This comes after the multilateral agency earlier delayed dispersing funds to Sri Lanka to asses the implications of 44% tariffs levied by the US on the South Asian nation, which are currently paused. Sri Lanka has since proposed a slew of measures in a bid to negotiate with the US, including energy imports, and expects to work out an arrangement covering its bilateral trade relationship before expiry of the 90-day tariff suspension.
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“Program performance remains strong overall,” the IMF said. “However, global trade policy uncertainty poses significant downside risks to Sri Lanka’s economy.”
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If these materialize, authorities and staff will work together to assess the impact and formulate policy responses within the contours of the IMF-supported program, according to the statement.
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Sri Lanka’s dollar bonds rallied. The note due June 2035 added 1.4 cent on the dollar, trading at the highest level since April 2. In all, five securities from the country were among the 20 best-performing sovereign bonds in emerging markets on Friday.
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Sri Lanka has followed tight fiscal guidelines under the IMF bailout, including restructuring most of its debt with bondholders. President Anura Kumara Dissanayake vowed to stick with the program after coming to power last year. The funds are key for the island nation to build back the economy after a historic default in 2022.
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The IMF said Sri Lanka needed to restore electricity cost-recovery pricing as a prior action for the fourth review.
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“Going forward, sustaining reform momentum including by reducing corruption vulnerabilities, is critical to safeguard the hard-won gains, durably restore macroeconomic and debt sustainability, and unlock robust and inclusive growth,” the IMF statement said.
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—With assistance from Akriti Sharma and Srinivasan Sivabalan.
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