IMF Reaches Staff-Level Agreement on the Second Review of Sri Lanka’s Extended Fund Facility and Concludes the 2024 Article IV Consultation

IMF News, March 21, 2024

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IMF staff reached staff-level agreement with the Sri Lankan authorities on the second review under the 4-year Extended Fund Facility (EFF) arrangement and concluded the 2024 Article IV Consultation discussions.
The EFF arrangement was approved by the IMF Executive Board for a total amount of SDR 2.3 billion (about US$3 billion) on March 20, 2023.
Upon IMF Executive Board approval of the second review, Sri Lanka would have access to SDR 254 million (about US$337 million).
Total IMF financial support disbursed under the arrangement would reach SDR 762 million (about US$1 billion) after the review.
Completion of the Executive Board review is contingent on:
- (i) the implementation by the authorities of prior actions; and
- (ii) the completion of a financing assurances review, confirming multilateral partners’ financing contributions and assessing adequate progress with debt restructuring.

Program performance was strong, with all quantitative performance criteria and indicative targets for end-December 2023 met except for the indicative target on social spending.
Most structural benchmarks due before end-February 2024 were either met or implemented with delay.
Macroeconomic improvements and indicators:
- Growth turned positive after six consecutive quarters of contraction, registering 1.6 percent and 4.5 percent y-o-y growth in the third and fourth quarters of 2023 respectively.
- Inflation declined from a peak of 70 percent in September 2022 to 5.9 percent in February 2024.
- Gross official reserves increased to US$4.5 billion at end-February 2024 with sizeable foreign exchange purchases by the central bank.
- High-frequency indicators point to a continued pick-up in manufacturing, construction, and services.

Sustain reform momentum to achieve lasting recovery and stable and inclusive economic growth.
Fiscal policy and revenue measures:
- Continue progress towards the introduction of the property tax.
- Implement revenue measures to meet the revenue mobilization goals in 2025 and beyond.
- Strengthen revenue administration and anti-corruption efforts to boost tax collections.
State-owned enterprises and pricing:
- Maintain cost recovery in fuel and electricity pricing to minimize fiscal risks from state-owned enterprises.
Inflation and external buffers:
- Continued monitoring of inflation is warranted to anchor inflationary pressures and support macroeconomic stability.
- Continue to rebuild external buffers through strong reserves accumulation given ongoing external uncertainty.

Agreements in principle with the Official Creditor Committee and Export-Import Bank of China on debt treatments consistent with program parameters were highlighted as important milestones.
Critical next steps:
- Finalize the agreements with the official creditors.
- Reach Agreements in Principle with the main external private creditors in line with program parameters in a timely manner.
Successful completion of creditor agreements should help restore Sri Lanka’s debt sustainability over the medium term.

The authorities’ recently published Action Plan to implement key recommendations of the Governance Diagnostic Report is a welcome step.
Sustained efforts to implement governance reforms are essential for addressing corruption risks, rebuilding economic confidence, and making growth more robust and inclusive.
Social safety nets:
- Continued efforts to improve targeting, adequacy, and coverage of social safety nets, particularly Aswesuma, remain critical to protect the poor and the vulnerable.
The IMF mission met with tea plantation workers in Nuwara Eliya and noted firsthand challenges faced by some of the most vulnerable.

The IMF mission met with President and Finance Minister Ranil Wickremesinghe; Central Bank of Sri Lanka Governor Dr. P. Nandalal Weerasinghe; Minister of Power and Energy Mr. Kanchana Wijesekera; State Minister Mr. Shehan Semasinghe; Chief of Staff to the President Mr. Sagala Ratnayaka; Secretary to the Treasury Mr. K M Mahinda Siriwardana; other senior government and CBSL officials; Parliamentarians; representatives from the private sector; civil society organizations; and development partners.
The IMF team thanked the authorities for the excellent collaboration.

Press Release No. 24/94 — March 21, 2024, IMF Communications Department

Pr2494 Sin Sri Lanka Press Release
- Pr2494 Sin Sri Lanka Press Release (Markdown version)
- Pr2494 Sin Sri Lanka Press Release (PDF)
pr2494-tam-sri-lanka-press-release
- pr2494-tam-sri-lanka-press-release (Markdown version)
- pr2494-tam-sri-lanka-press-release (PDF)