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Sri Lanka and IMF arrive at a prior agreement on a loan of approximately $2.9 billion

Sri Lanka and IMF arrive at a prior agreement on a loan of approximately $2.9 billion

September 2, 2022: -The International Monetary Fund (IMF) has preliminarily permitted extending a two-year $2.9 billion loan to Sri Lanka to revive economic stability in the crisis-reach South Asian country.

The loan will be done under the IMF’s Extended Fund Facility, which helps countries deal with the balance of payments or cash flow problems. It will only be disbursed following satisfactory debt restructuring, including debt relief arrangements, which have been struck between Sri Lankan authorities and the creditors of the country.

The program contains reforms for Sri Lanka to reduce corruption and increase financial transparency.

“Sri Lanka faces an acute crisis. Vulnerabilities are growing owing to inadequate external buffers and an unsustainable public debt dynamic,” the IMF’s Peter Breuer and Masahiro Kozak said.

“The April debt moratorium led to Sri Lanka defaulting on its external obligations, and a low level of foreign reserves is hampering the import of essential goods, which include fuel, further impeding economic activity.”

The IMF added that Sri Lanka’s economy is expected to contract by 8.7% this year as inflation soars above 60%.

“The impact is being disproportionately borne by the poor and vulnerable,” the IMF’s Breuer and Nozak said, which added the funds “aim to stabilize the economy, is protecting the livelihoods of the Sri Lankan people, and prepares the foundation for economic recovery and which promotes sustainable and inclusive growth.”

The IMF said the recent loan is subject to IMF management and executive board approval. It also said the loan could not be made unless Sri Lankan authorities have shown satisfactory debt restructuring, which includes debt relief arrangements with external creditors.

Therefore, it is contingent on the IMF receiving financing assurances from Sri Lanka’s official creditors that deals have been reached and Sri Lanka can repay its debts. The IMF must be satisfied that local authorities have made reasonable efforts to collaborate with all other private creditors.

Sri Lanka has over $50 billion in external debt owed to countries like Japan and China and the World Bank, according to the Sri Lanka central bank.

On Thursday, at a press conference, Breuer added that the preliminary agreement signals from the Sri Lankan authorities that they were committed to comprehensive reforms that the IMF would monitor.

“This is a credible device to show creditors that Sri Lanka is serious in engaging in reforms,” Breuer added.

“It assures creditors that it will restore payment capacity and is committed to doing so, to the international committee.”

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Sri Lanka and IMF arrive at a prior agreement on a loan of approximately $2.9 billion