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New IMF funds for Sri Lanka may face delay after review sees revenue shortfall

September 28, 2023 2:47 PM IST

South Asia | Sri Lanka | IMF | IMF package

The International Monetary Fund (IMF) on Wednesday announced that it did not reach a staff-level agreement with Sri Lanka during the first review of the US$2.9 billion bailout package. The primary concern cited by the international body was a potential shortfall in government revenue generation by the island nation.

The IMF acknowledged Sri Lanka’s commendable progress in implementing challenging but essential reforms, noting that these efforts have begun to yield results, with the economy showing early signs of stabilization. In a statement following a two-week visit to the financially strained South Asian nation, the IMF stated that the team will continue its discussions in the context of the First Review with the goal of reaching a staff-level agreement in the near term.

Despite these positive indicators, the IMF delegation, led by Peter Breuer, expressed caution, emphasizing that full economic recovery remains uncertain, and growth momentum remains sluggish. The IMF also highlighted that while revenue mobilization has improved compared to the previous year, it is expected to fall short of initial projections by nearly 15 percent for the year.

It is worth noting that Sri Lanka has grappled with its most severe financial crisis since gaining independence from Britain in 1948. Last year, the country faced record-low Foreign Exchange reserves, prompting India to extend humanitarian assistance totaling approximately 4 billion USD through grants and lines of credit. Earlier this year, the IMF granted approval for a 2.9 Billion USD extended fund facility, which would be accessible to Sri Lanka over a 48-month period.

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