Sri Lanka, IMF reach preliminary agreement on $2.9B loan

International Monetary Fund (IMF) on Thursday said it has reached a staff-level agreement to support crisis-hit Sri Lanka with an extended fund facility (EFF) of about $2.9 billion.

"The Sri Lankan authorities and the IMF team have reached a staff-level agreement to support the authorities' economic adjustment and reform policies with a new 48-month Extended Fund Facility (EFF) with a requested access of about SDR 2.2 billion (equivalent to US$2.9 billion)," said a statement issued by the IMF mission, led by Peter Breuer and Masahiro Nozaki, on Thursday morning.

The duo visited Colombo from Aug. 24 to Sept. 1 to continue discussions on IMF support for Sri Lanka and the authorities' comprehensive economic reform program.

The IMF said the new EFF arrangement will support "Sri Lanka's program to restore macroeconomic stability and debt sustainability, while safeguarding financial stability, reducing corruption vulnerabilities, and unlocking Sri Lanka's growth potential."

"The agreement is subject to the approval by IMF management and the executive board in the period ahead, contingent on the implementation by the authorities of prior actions, and on receiving financing assurances from Sri Lanka's official creditors and making a good faith effort to reach a collaborative agreement with private creditors," the statement said.

The statement mentioned several key elements of the program including raising fiscal revenue to support fiscal consolidation; introducing cost-recovery-based pricing for fuel and electricity to minimize fiscal risks arising from state-owned enterprises; rebuilding foreign reserves and reducing corruption vulnerabilities through improving fiscal transparency.

Sri Lanka has been under a state of emergency since April when mass protests started against the government's handling of the economy.

Crippled by a shortage of foreign exchange reserves after the collapse of its tourism-dependent economy, the country of 22 million people has defaulted on all its foreign debt.

It has been unable to pay for food, fuel, and other necessities, with a fuel shortage causing daily power outages. Schools have been closed, and government employees have been asked to work from home.

In July, Ranil Wickremesinghe was sworn in as the new president of the country which is grappling with its worst financial crisis.