The Executive Board of the International Monetary Fund (IMF) last week approved a 36-month extended arrangement under the Extended Fund Facility (EFF) with Sri Lanka for US$1.5 billion to support the country’s economic reform agenda. In an annexure issued along with its formal statement announcing the loan approval, the IMF stated the programme would envisage implementation of a set of reforms under six pillars to achieve four key objectives.

The six pillars are (i) Fiscal consolidation; (ii) Revenue mobilization; (iii) Public financial management reform; (iv) State enterprise reform; (v) Transition to flexible inflation targeting under a flexible exchange rate regime; and (vi) Reforms in the trade and investment regime.

“The key objectives of the programme relate to fiscal policy and the balance of payments, and measures to: (a) implement a structural increase in revenues, facilitating a reduction in the fiscal deficit; (b) reverse the decline in central bank foreign exchange reserves; (c) reduce public debt relative to GDP and lower Sri Lanka’s risk of debt distress; and (d) enhance public financial management and improve the operations of
state-owned enterprises. The programme also aims to transition toward inflation targeting with a flexible exchange rate regime and to promote sustainable and inclusive economic growth,” the IMF said.

The statement further noted that the proposed new IMF-supported programme aims to provide a policy anchor for macroeconomic stability and structural reforms, while strengthening external resiliency in a challenging global environment.

“The IMF arrangement aims to meet balance of payments needs arising from a deteriorating external environment and pressures that may persist until macroeconomic policies can be adjusted. It is also expected to catalyze an additional US$650 million in other multilateral and bilateral loans, bringing total support to about $2.2 billion (over and above existing financing arrangements),” the IMF said. The Executive Board’s decision will enable an immediate disbursement of about US$ 168.1 million, and the remainder will be available in 6 instalments subject to quarterly reviews, the
IMF further added.