May 5, 2025 7:53 pm
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IMF Approves Third Review of Sri Lanka’s $2.9bn Bailout

$333 Million Released as Economic Recovery Takes Shape

The International Monetary Fund (IMF) has approved the third review of Sri Lanka’s $2.9 billion bailout, signaling cautious optimism about the country’s economic recovery while warning of persistent vulnerabilities.

On Saturday, the IMF announced the release of $333 million, bringing total disbursements under the program to $1.3 billion. The bailout, first secured in March 2023, has been instrumental in stabilizing Sri Lanka’s economy after its worst financial crisis in over 70 years in 2022.

Debt Restructuring Still Pending

Despite signs of progress, Sri Lanka still faces significant hurdles, including the restructuring of $12.5 billion in bondholder debt and a $10 billion debt rework with bilateral creditors such as Japan, China, and India. The IMF emphasized that completing these restructuring efforts is essential to advancing the program.

Progress and Remaining Challenges

Economic stability has improved since 2022, a year marked by a severe foreign exchange crisis that left Sri Lanka unable to import basic necessities like food, fuel, and medicine. The crisis triggered mass protests and led to the resignation of then-President Gotabaya Rajapaksa.

Al Jazeera’s Minelle Fernandez reported from Colombo that the IMF is satisfied with the government’s pace of reforms, noting that the economy has stabilized significantly. “This cash infusion will help maintain reserves and ensure the supply of basic necessities,” she said.

However, IMF senior mission chief Peter Breuer stressed the importance of adhering to fiscal reforms, including boosting tax revenues and restructuring state-owned enterprises, to achieve the program’s goal of a 2.3% primary budget surplus in 2024.

Inflation and Economic Growth

Inflation, which peaked at 70% during the crisis, is now under control at around 0.7%. The economy, which contracted by 7.3% in 2022 and 2.3% in 2023, is projected to grow by 4.4% this year, according to the World Bank.

Sri Lanka’s President Anura Kumara Dissanayake, who leads a recently elected left-wing coalition, expressed strong support for the IMF program in his first parliamentary address. He pledged to finalize debt restructuring by the end of December and underscored the importance of disciplined economic management.

An interim budget is expected to be presented in December, paving the way for the fourth review of the IMF program.

“Not Out of the Woods Yet”

While signs of recovery are evident, the IMF cautioned that challenges remain. “The authorities have committed to staying within the program’s guardrails,” Breuer said, adding that economic reforms will be critical to sustaining growth and avoiding future crises.

Sri Lanka’s journey from crisis to recovery is progressing, but the path ahead remains fraught with challenges.

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