IMF tentatively accepts $2.9 billion loan for Sri Lanka

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COLOMBO, Sept 1 (Reuters) – Sri Lanka has reached a preliminary agreement with the International Monetary Fund (IMF) for a loan of around $2.9 billion, the global lender said on Thursday, as the country seeks a out of its worst economic crisis in decades.

The deal, which Reuters first reported on Wednesday, is subject to the approval of IMF management and its board, and is contingent on the Sri Lankan authorities complying with previously agreed measures. Read more

“The staff agreement is just the start of a long road for Sri Lanka,” senior IMF official Peter Breuer told reporters in the commercial capital Colombo.

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“The authorities have already started the reform process and it must continue with determination.”

The IMF is demanding to receive assurances of financing from Sri Lanka’s official creditors, in addition to ensuring that 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 needed to help ensure debt sustainability and close financing gaps,” the IMF said in a statement.

The 48-month IMF program will aim to increase government revenue to support fiscal consolidation, introduce new prices for fuel and electricity, increase social spending, strengthen central bank autonomy and rebuild depleted foreign exchange reserves.

“Starting from one of the lowest income levels in the world, the program will implement major tax reforms. These reforms include making the personal income tax more progressive and broadening the tax base. tax for corporation tax and VAT,” the statement said.

“The program aims to achieve a primary surplus of 2.3% of GDP by 2024,” he added.

COLLABORATION WITH THE CREDITOR

President Ranil Wickremesinghe, who is also the country’s finance minister, presented an interim budget on Tuesday aimed at concluding the agreement with the IMF.

The budget revised Sri Lanka’s deficit projection for 2022 to 9.8% of gross domestic product from 8.8% earlier, while outlining tax reforms including a hike in value added taxes. Read more

Sri Lanka needs to restructure nearly $30 billion in debt, and Japan has offered to hold talks with other major creditors, including regional rivals India and China.

“If creditors are unwilling to provide assurances, it would aggravate Sri Lanka’s crisis and undermine repayment capacity,” Breuer said, adding that it was in all creditors’ interest to work together.

Sri Lanka will also have to strike a deal with the international banks and asset managers that hold the majority of its $19 billion in sovereign bonds, which are now classified as defaulted.

The indebted country has requested up to $3 billion from the IMF in a bid to escape its worst economic crisis since gaining independence from Britain in 1948.

Sri Lankans have faced severe shortages of fuel and other basics for months, leaving them in political turmoil and plagued by soaring inflation, which is now nearly 65% ​​year-on-year.

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Reporting by Uditha Jayasinge, writing by Devjyot Ghoshal; Editing by Raju Gopalakrishnan

Our standards: The Thomson Reuters Trust Principles.

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