IMF

As part of the IMF-supported arrangement Sri Lanka has undertaken significant reforms to pave the way out of a deep economic and debt crisis. The economy is showing tentative signs of stabilization, supported by rapid disinflation and a significant fiscal adjustment. Tax revenues have increased but not as much as initially projected, and reserves accumulation has slowed, including due to slow progress on debt restructuring. Continued ownership of reforms is essential to rebuild fiscal credibility and to improve governance and reduce corruption vulnerabilities. The authorities reached agreements in principle (AIPs) with official creditors on debt treatments consistent with program parameters and are in good faith

IMF Executive Board Completes the First Review Under the Extended Fund Facility Arrangement with Sri Lanka discussions with their private creditors.

https://www.imf.org/en/News/Articles/2023/12/12/pr23439-sri-lanka-imf-executive-board-completes-first-review-under-eff-arrangement

EXECUTIVE SUMMARY
Context. As part of the IMF-supported arrangement Sri Lanka has undertaken
significant reforms to pave the way out of a deep economic and debt crisis. The
economy is showing tentative signs of stabilization, supported by rapid disinflation and
a significant fiscal adjustment. Tax revenues have increased but not as much as initially
projected, and reserves accumulation has slowed, including due to slow progress on
debt restructuring. Continued ownership of reforms is essential to rebuild fiscal
credibility and to improve governance and reduce corruption vulnerabilities. The
authorities reached agreements in principle (AIPs) with official creditors on debt
treatments consistent with program parameters and are in good faith discussions with
their private creditors.
Program Status. In March 2023, the IMF’s Executive Board approved a 48-month
Extended Arrangement under the Extended Fund Facility (EFF), with access to Fund
resources of SDR 2.286 billion (395 percent of quota or about US$3 billion), and a first
disbursement of SDR 254 million (about US$333 million). The arrangement supports
Sri Lanka’s efforts to restore sustainability through an ambitious revenue-based fiscal
consolidation and debt restructuring; maintain price stability as well as rebuild reserves
under greater exchange flexibility; safeguard financial sector stability; and address
corruption vulnerabilities. On completion of the first review, Sri Lanka would have access
to an additional SDR 254 million.
Program Performance. Program performance at end-June was satisfactory. All
end-June quantitative performance criteria (QPCs) were met, except on expenditure
arrears, and all continuous QPCs were also met. All end-June indicative targets (IT) were
met, except on tax revenue. Headline inflation led to the nonobservance of the end-June
lower outer MPCC band, triggering consultation with the Executive Board. Based on the
available data, all end-September ITs were met except for the tax revenue floor. Most
structural benchmarks (SBs) due by end-October 2023 were either met or implemented
with delay.
November 28, 2023
SRI LANKA
2 INTERNATIONAL MONETARY FUND
Program Risks. Risks to program implementation and financing are high and have increased since
program approval. Implementation risks arise from Sri Lanka’s track record of reform
implementation and the challenging political and social situation. A deeper crisis induced by delays
in implementing the debt restructuring, a weakened banking sector, exchange rate pressure, and
loss of market confidence could also complicate program implementation. In this regard,
contingency plans are crucial, and policies should remain agile to adjust to the evolving
circumstances.
Program Modalities. All three prior actions for the first review have been met. Modifications of
end-December 2023 program targets are being proposed for the QPCs for Net Credit to
Government (NCG), the Monetary Policy consultation Clause (MPCC) and the ITs on central
government tax revenue and treasury guarantees. The program also proposes new and modified
structural benchmarks. Staff support the authorities’ request to rephase access by adjusting the
disbursement availability schedule to better align it with data availability for test dates. A waiver is
requested for the non-observance of the end-June QPC on arrears given that this nonobservance
was temporary. Staff recommends that the Board completes the required MPCC consultation.

https://www.imf.org/en/Publications/CR/Issues/2023/12/12/Sri-Lanka-First-Review-Under-the-Extended-Arrangement-Under-the-Extended-Fund-Facility-542441