The International Monetary Fund (IMF) is preparing to disburse the second tranche of a $3 billion Extended Fund Facility (EFF) loan to Sri Lanka, a nation currently grappling with its most severe economic crisis. The decision, announced on Friday, is pending approval from the IMF executive board and will see around $330 million released to the South Asian country.
The decision follows a successful first review of the four-year EFF agreement that Sri Lanka signed in March 2023. This agreement came after Sri Lanka defaulted on its $46 billion debt last year, leading to acute food and fuel shortages that impacted millions of its residents.
Despite these challenges, early signs of economic stabilization have emerged in Sri Lanka. The country has experienced rapid disinflation, with rates falling from 70% to 1.3%. Additionally, gross international reserves have increased by $1.5 billion. However, the journey towards full recovery remains uncertain.
The IMF's Peter Breuer and Katsiaryna Svirydzenka have praised Sri Lanka for its ambitious reform agenda under the EFF agreement. They commended the nation's unwavering commitment to this plan amidst its ongoing crisis.
In related news, Chinese President Xi Jinping has expressed his intention to deepen mutual trust with Sri Lanka's Ranil Wickremesinghe and jointly develop the Belt and Road initiative. China's state broadcaster CCTV reported these discussions took place at the Belt and Road forum attended by 130 government representatives.
China, being Sri Lanka's largest creditor, holds significant influence over any debt restructuring proposal. The Export-Import Bank of China would need to approve such proposals. Xi Jinping described the China-Sri Lanka partnership as one built on "sincere mutual assistance and everlasting friendship".
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