IMF set to provide $2.9 billion to help crisis-hit Sri Lanka

COLOMBO, Sri Lanka (AP) — The International Monetary Fund will provide Sri Lanka $2.9 billion over four years to help salvage the country from its worst economic crisis under a preliminary agreement the agency announced Thursday.

The arrangement will work to restore financial and macroeconomic stability and debt sustainability as well as unlock the country’s growth potential, the IMF team visiting Sri Lanka said in a statement.

The package is contingent on approval from the IMF management and executive board, as well as on receiving assurances from Sri Lanka’s creditors, which include countries like China, India and Japan, that debt sustainability will be restored.

“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 statement said.

Sri Lanka is in the midst of an unprecedented economic crisis with acute monthslong shortages of essentials like fuel, medicine, and cooking gas due to a severe foreign currency dearth. Though cooking gas supplies were restored through World Bank support, shortages of fuel, critical medicines and some food items continue.

The island nation has suspended repayment of nearly $7 billion in foreign debt due for this year. The country's total foreign debt amounts to more than $51 billion of which $28 billion has to be repaid by 2028.

Sri Lanka’s economy is expected to shrink by 8.7% in 2022 with inflation rising above 60%, the IMF said, adding that the impact has hit the poor and vulnerable the hardest.

The lender said its package will focus on stabilizing the economy, protecting the livelihoods of citizens and help to spur growth. Key elements include major tax and energy pricing reforms, raising social spending,...