The International Monetary Fund has reached a staff-level agreement with Sri Lanka that could release around $700 million in financing once formally approved, the lender said on Thursday. The pact calls for economic reforms, including adjustments to fuel levies, to support stability and growth.
Sri Lanka has been recovering from its worst economic crisis in decades, which triggered a $2.9-billion IMF bailout and a foreign debt default in 2022. While reforms have helped the recovery, the country faces renewed pressure from external shocks, including the ongoing Middle East conflict and Cyclone Ditwah, the IMF said.
Evan Papageorgiou, the IMF mission chief for Sri Lanka, noted that U.S.-Israeli strikes on Iran disrupted energy flows before a ceasefire on Tuesday, driving up global energy prices, affecting Sri Lankan workers in the region, and straining a key air hub for tourists.
The rising energy costs have intensified pressure on Sri Lanka’s foreign exchange reserves. The government has implemented measures including fuel rationing, ordering public holidays on Wednesdays, and raising pump prices by about 35% last month to curb consumption. In addition, Sri Lanka is negotiating with China, India, and Russia to secure uninterrupted fuel supplies, and plans to spend $600 million to purchase refined fuel for April.
The IMF highlighted the need for Sri Lanka to raise power tariffs further and carefully manage its finances, warning that reserve targets under the program may be revisited to offset higher fuel costs. The staff-level agreement is expected to be presented to the IMF executive board by the end of May or early June.
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