Colombo, Sep 1 (EFE).- The International Monetary Fund (IMF) Thursday said it had reached a preliminary agreement with the Sri Lankan government for a $2.9 billion bailout package to help the island nation battle its worst economic crisis in decades.
An IMF statement said it had provisionally agreed on a 48-month arrangement under the Extended Fund Facility (EFF) of about $2.9 billion.
The agreement will now need approval by the management and executive board of the IMF.
“Debt relief from Sri Lanka’s creditors and additional financing from multilateral partners will be required to help ensure debt sustainability and close financing gaps,” the IMF statement said.
The statement said financing assurances to restore debt sustainability from Sri Lanka’s official creditors and reaching a collaborative agreement with private creditors were “crucial” for the IMF financial support.
The IMF’s help is also subject to Sri Lanka following previously agreed measures like reducing corruption vulnerabilities and unlocking the growth potential of the island.
“Debt relief from Sri Lanka’s creditors and additional financing from multilateral partners will be required to help ensure debt sustainability and close financing gaps.”
Sri Lanka has been facing an acute crisis.
Vulnerabilities grew owing to inadequate external buffers and an unsustainable public debt dynamic.
The April debt moratorium led to Sri Lanka defaulting on its external obligations.
A critically low level of foreign reserves has hampered the import of essential goods, including fuel, further impeding economic activity.
The economy is expected to contract by 8.7 percent in 2022 as inflation recently exceeded 60 percent.
The crisis sparked protests across the country, forcing then-President Gotabaya Rajapaksa to flee in July and the subsequent election of Ranil Wickremesinghe.
The IMF bailout will aim to stabilize the economy, protect the livelihoods of the Sri Lankan people, prepare the ground for economic recovery and promote sustainable and inclusive growth.
Some key program elements include raising fiscal revenue to support fiscal consolidation.
The package will implement major tax reforms starting from one of the lowest revenue levels in the world.
“These reforms include making personal income tax more progressive and broadening the tax base for corporate income tax and VAT. The program aims to reach a primary surplus of 2.3 percent of GDP by 2024,” the IMF statement said. EFE