Sri Lanka showing signs of recovery but challenges remain, says IMF

Helped by a $2.9 billion IMF bailout, the South Asian country is on the path to recovery from its worst financial crisis in seven decades

Two Sri Lankan army members stand at Sri Lanka's biggest hospital in Colombo during a countrywide one-day strike by healthcare workers in Colombo, Sri Lanka Jan 16, 2024. REUTERS

Sri Lanka's swift completion of final agreements with official lenders and reaching resolution with external private creditors remain critical, the International Monetary Fund (IMF) said after concluding a staff visit to the island nation.

Helped by a $2.9 billion bailout by the IMF, the South Asian country is on the path to recovery from its worst financial crisis in seven decades.

"The economic reform programme implemented by the Sri Lankan authorities is yielding the first signs of recovery," IMF said in a statement. "However, challenges remain as these improvements need to translate into improved living conditions for Sri Lanka's people."

At the beginning of the year, Sri Lanka had to raise value added tax (VAT) to 18% from 15% to meet revenue targets under the four-year IMF programme.

IMF said tax policy measures need to be accompanied by strengthening administration, removing exemptions, and actively eliminating tax evasion to make the reforms more sustainable and further build confidence among creditors to support Sri Lanka's efforts to regain debt sustainability.

"A swift completion of final agreements with official creditors and reaching a resolution with external private creditors remain critical," Peter Breuer, IMF's senior mission chief in Sri Lanka, said.

Progress in meeting key commitments under the IMF-supported programme will be formally assessed during the second review of the arrangement alongside the upcoming 2024 Article IV consultation assessing Sri Lanka's economic health, the statement added.