The International Monetary Fund (IMF) has struck a staff-level agreement with Sri Lanka, poised to release around $700 million in financing upon formal approval, the organization announced Thursday. It urged reforms, such as adjustments to fuel levies, aimed at securing stability and growth.
This pact arrives as the South Asian island nation rebounds from its severest economic crisis in decades, triggering a foreign debt default in 2022 and a $2.9-billion IMF bailout program.
While Sri Lanka’s economic reforms have bolstered the recovery, the country remains highly vulnerable to the U.S.-Iran conflict and must “build back better” in the wake of Cyclone Ditwah, the IMF noted.
The Middle East conflict triggered a spike in energy prices, interrupted a vital air hub for tourists, and impacted Sri Lankans employed in the region, stated Evan Papageorgiou, the IMF’s mission chief for Sri Lanka.
“The staff-level agreement will go before the IMF executive board at the end of May or early April,” he added.
Read more: Sri Lanka secures $347 million IMF deal as part of $3 billion economic recovery program
Urging fiscal oversight and tariff adjustments
Sri Lanka must increase power tariffs more and prudently oversee its finances to weather the Middle East crisis, the IMF stated, noting it could adjust reserve targets under the program to assist Sri Lanka with covering higher fuel costs.
U.S.-Israeli strikes on Iran interfered with energy flows from the Middle East before Tuesday’s ceasefire, restricting supplies and prompting Asian nations to address energy supply shortages and elevated prices.
The agreement arrives as soaring energy prices strain Sri Lanka’s foreign exchange reserves, prompting the country to declare public holidays on Wednesdays, implement fuel rationing, and hike pump prices by about 35 percent last month to curb consumption.
Sri Lanka is negotiating with China, India and Russia to secure uninterrupted fuel supplies, and plans to spend $600 million to buy refined fuel for April.
