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IMF resumes Sri Lanka bailout after China’s debt deal

WASHINGTON (AFP) – The International Monetary Fund (IMF) revived its USD2.9 billion bailout for Sri Lanka on Tuesday after the South Asian nation clinched a debt restructuring deal with China, its biggest official lender.

The IMF said its board had completed the first review of Sri Lanka’s rescue package known as the Extended Fund facility (EFF) and released the second tranche of USD337 million to support economic policies and reforms.

Sri Lanka had expected the progress review to be completed by September, but it was held up pending financial assurances from China, which holds 52 per cent of the island’s bilateral debt.

IMF’s mission chief for Sri Lanka, Peter Breuer, told reporters in Washington that Colombo had shared China’s debt-restructuring offer with the IMF on a “strictly confidential basis”.

However, it fell within the IMF’s debt sustainability targets for the island, he added.

A papadam vendor waits for customers at a market in Colombo, Sri Lanka. PHOTO: AFP

He said policy reforms were starting to bear fruit and the economy was showing signs of stabilisation, but the key to a full and swift recovery was sustaining reform momentum. “We encourage the authorities to continue to build on these hard-won gains and further advance revenue mobilisation,” Breuer said.

Colombo welcomed the latest IMF cash injection and reiterated its commitment to maintain unpopular reforms to raise taxes, scrap energy subsidies and privatize state enterprises.

“We are grateful to the cooperation of the official creditor committee… for agreeing in principle to the debt restructuring process,” junior finance minister Shehan Semasinghe said.

The island nation of 22 million people defaulted on its USD46 billion external debt last year after running out of foreign exchange to finance imports such as food, fuel and medicines.

The country went to the IMF and secured the rescue loan spread over four years with the first instalment of USD330 million paid in March.

With Tuesday’s decision, Sri Lanka has received about USD670 million of the full loan of nearly USD3.0 billion.