IMF holds 'fruitful' talks with Sri Lanka on loan programme

Discussions emphasised the need for implementing a 'credible and coherent' strategy to restore macroeconomic stability

A farmer works on a paddy field in Tissamaharama, Hambantota District, in Sri Lanka. The country is facing severe shortages of basic food items amid soaring prices. AFP

The International Monetary Fund said it had “fruitful technical discussions” with Sri Lanka on its request for a loan programme, as the island nation grapples with a severe economic crisis that has sparked protests across the country.

IMF staff and the Sri Lankan delegation, which met from April 18 to April 22, discussed policy actions to address the country's economic challenges, the Washington-based lender said in a statement.

The talks covered “the need for implementing a credible and coherent strategy to restore macroeconomic stability, and the importance of stronger social safety nets to mitigate the adverse impact of the current economic crisis on the poor and vulnerable”, Masahiro Nozaki, mission chief for Sri Lanka, said.

Sri Lanka's finance minister Ali Sabry was in Washington last week talking to the IMF and other lenders about financial assistance. The country is struggling with ballooning liabilities and soaring inflation amid its worst economic crisis in decades.

The debt-laden country is facing shortages of essential goods and hours-long power cuts, triggered by its difficulty in paying for imported fuel and other commodities following a collapse in its foreign exchange reserves.

Sri Lanka needs between $3 billion and $4bn this year to pull itself out of the economic turmoil, and has approached the IMF, the World Bank, India and others for funds.

“The IMF team welcomed the Sri Lankan authorities’ plan to engage in a collaborative dialogue with their creditors,” Mr Nozaki said, after Sri Lanka took steps to explore a restructuring of about $12bn in sovereign bonds.

“Going forward, the IMF team will support Sri Lanka’s efforts to overcome the current economic crisis by working closely with the authorities on their economic programme, and by engaging with all other stakeholders in support of a timely resolution of the crisis,” he said.

IMF projections show the country is expected to grow 2.6 per cent this year, down from 3.6 per cent in 2021.

The fund will consider providing quick financial assistance to debt-burdened Sri Lanka following representations by India, Mr Sabry said last week.

The government hopes that an IMF-backed programme will help top up its reserves and attract bridge financing to pay for essential imports of fuel, food and medicines.