IMF’s second tranche finalisation to Sri Lanka in December: Central bank governor

The second tranche of the USD 2.9 billion IMF bailout for cash-strapped Sri Lanka would be finalised within the next month, central bank governor Nandalal Weerasinghe said on Friday. The government is expecting around USD 330 million as the second tranche of the USD 2.9 billion 4-year bailout, following the first one that was extended in March under the Extended Fund Facility (EFF) to support Sri Lanka’s economic policies and reforms.

Sri Lanka was hit by its worst economic crisis in history when the country’s foreign exchange reserves fell to a critical low and the public came out on the streets to protest the shortage of fuel, fertilisers and essential commodities.

“We are making good progress with the first review. We will get the programme approved. What is required for that (is) assurances from bilateral creditors. The official creditor committee would be forthcoming,” Governor of the Central Bank of Sri Lanka (CBSL) Weerasinghe told reporters.

“With that, there will be additional fund support from the Asian Development Bank (ADB) and the World Bank. And the IMF budget support will help the government budgetary financing from next month onwards,” he said.

The IMF review that happened in September highlighted revenue shortfalls and other flaws in meeting programme targets in addition to the non-finalisation of external debt restructuring.

Weerasinghe said the recovery of the economy has got underway. “Continuous decline in GDP growth on a quarterly basis happened up to this year’s second quarter. What we see in quarters three and four of the quarterly growth would be marginally positive. The economy will remain marginally negative this year.” The central bank governor expected the growth would remain about 2 per cent negative in 2024. Meanwhile, the Monetary Policy Board of the Central Bank, at its meeting held on Thursday, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 100 basis points (bps) to 9.00 per cent and 10.00 per cent, respectively.

“The Board arrived at this decision following a careful analysis of the current and expected developments in the domestic and global economy, with the aim of achieving and maintaining inflation at the targeted level of 5 per cent over the medium term, while enabling the economy to reach and stabilise at the potential level,” the CBSL said in a statement on Friday.

The Board viewed that with this reduction of policy interest rates, along with the monetary policy measures carried out since June 2023, sufficient monetary easing has been effected in order to stabilise inflation over the medium term.

Sri Lanka declared bankruptcy in April 2022 which saw the ouster of the Gotabaya Rajapaksa government mid-year. The island nation announced its first-ever sovereign default since gaining independence from Britain in 1948.

The Rajapaksas and their fiscal hierarchy were found responsible for the economic downturn by the highest court in fundamental rights petitions.