Mar 21, Colombo: The International Monetary Fund (IMF) Executive Board on Monday approved a 48-month extended arrangement under the Extended Fund Facility (EFF) of SDR 2.286 billion (about US$3 billion) to support Sri Lanka’s economic policies and reforms.
Following the approval Sri Lanka will immediately receive an initial disbursement of about US$330 million from the EFF arrangement, Peter Breuer, Senior Mission Chief for Sri Lanka and Masahiro Nozaki, Mission Chief for Sri Lanka, of the IMF Asia and Pacific Department said at a press conference held this morning in Colombo to announce the IMF Executive Board’s decision.
The money is expected to catalyze new external financing including from the Asian Development Bank and the World Bank.
The Mission Chiefs noted that the reform program supported under the EFF arrangement is built on strong policy measures and prioritizes an ambitious revenue-based fiscal consolidation, and fiscal institutional reforms among others and Sri Lanka has already started implementing these challenging policy actions.
The IMF officials said emphasized that it is essential to continue the reform momentum under strong ownership by the authorities and the Sri Lankan people more broadly.
Welcoming the authorities’ firm commitment to strengthen social safety nets, the IMF stressed that the economic impact of the reforms on the poor and vulnerable needs to be mitigated with appropriate measures.
Following is the press release in full;
Opening Remarks for the Press Briefing on the IMF Executive Board Approval of the
Extended Fund Facility (EFF) Arrangement for Sri Lanka
by Peter Breuer, Senior Mission Chief for Sri Lanka
& Masahiro Nozaki, Mission Chief for Sri Lanka,
Asia and Pacific Department, IMF
Today, the IMF Executive Board approved a 48-month extended arrangement under the Extended Fund
Facility (EFF) of SDR 2.286 billion (about US$3 billion) to support Sri Lanka’s economic policies and
reforms (See Press Release No. 23/79).
Sri Lanka has been facing a severe economic crisis as a result of past policy missteps and economic
shocks. We have been deeply concerned about the impact of the crisis on the Sri Lankan people,
particularly the poor and vulnerable groups, and about the economic costs of the delay in the country’s
access to external financing.
Today’s Board approval marks an important step towards the resolution of the crisis—Sri Lanka
will immediately receive an initial disbursement of about US$330 million from the EFF arrangement,
which is expected to catalyze new external financing including from the Asian Development Bank and the
The reform program supported under the EFF arrangement is built on strong policy measures and
prioritizes: (i) an ambitious revenue-based fiscal consolidation, accompanied by stronger social safety
nets, fiscal institutional reforms, and cost-recovery based energy pricing to ensure the state’s ability to
support all its essential expenditures; (ii) restoration of public debt sustainability, including through a debt
restructuring to ensure stable financing of the government’s operations; (iii) a multi-pronged strategy to
restore price stability and rebuild reserves under greater exchange rate flexibility in order to alleviate the
burden of inflation, particularly on the poor, to foster an environment of investment and growth, and to
ensure Sri Lanka’s ability to purchase essential goods from abroad; (iv) policies to safeguard financial
sector stability to ensure that the financial sector can play its key role in supporting economic growth; and
(v) structural reforms to address corruption vulnerabilities and enhance growth.
Commendably, Sri Lanka has already started implementing these challenging policy actions. It is now
essential to continue the reform momentum under strong ownership by the authorities and the Sri
Lankan people more broadly.
The economic impact of the reforms on the poor and vulnerable needs to be mitigated with
appropriate measures. In this regard, we welcome the authorities’ firm commitment to strengthen social
safety nets, including through a minimum spending floor, well-targeted spending through a new Social
Registry, and establishment of objective eligibility criteria. Tax reforms under the program are designed to
be progressive, that is, ensuring greater contributions from high-income earners. Efforts to increase tax
revenues should be pursued in a growth-friendly manner while protecting the poor and most vulnerable.
Sri Lanka’s public debt, at 128 percent of GDP as of end-2022, is unsustainable. The country is in arrears
to all its external creditors. IMF Board approval of assistance to Sri Lanka required assurances from
official bilateral creditors that they will provide debt relief and/or financing to restore debt sustainability
consistent with the program, as well as an assessment that the authorities are making good faith efforts to
reach a collaborative agreement with private creditors.1 These requirements were met ahead of the Board
It is now important for the Sri Lankan authorities and creditors to closely coordinate and make
swift progress towards a debt treatment that restores debt sustainability under the EFF-supported
program. The President’s recent open letter to official bilateral creditors includes commitments to
transparency and comparability of treatment for all external creditors, which should help facilitate this
process. IMF staff will continue to assist the authorities with creditor coordination in line with the IMF’s
Finally, we emphasize the importance of anti-corruption and governance reforms as a central pillar
of the EFF-supported program—they are indispensable to ensure the hard-won gains from the reforms
benefit the Sri Lankan people. The authorities have committed to fundamentally improve public financial
management and strengthen the anti-corruption legal framework in line with the United Nations
Convention against Corruption. In addition, the IMF is conducting an in-depth governance diagnostic
exercise, which will assess corruption and governance vulnerabilities in Sri Lanka and provide prioritized
and sequenced recommendations. Sri Lanka will be the first country in Asia to undergo a governance
diagnostic exercise by the IMF. We look forward to further engagement and collaboration with
stakeholders and civil society organizations on this critical reform area.
1 Specific and credible financing assurances have been obtained from Paris Club creditors, India,
Hungary and the Export-Import Bank of China. Consent to IMF financing notwithstanding Sri Lanka’s
arrears was obtained from the remaining Chinese official bilateral creditors, Iran, Kuwait, Pakistan and
Saudi Arabia. This demonstrated the support and determination by all of Sri Lanka’s official bilateral
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