Sri Lanka on Track for Debt Relief, IMF Says, Urges Faster Progress on Agreements

COLOMBO (News 1st); The International Monetary Fund (IMF) expressed cautious optimism about Sri Lanka's debt restructuring efforts, highlighting agreements reached with key creditors. However, the IMF urged Sri Lankan authorities to expedite the finalization of these agreements for a swifter path towards debt sustainability.

"Sri Lanka’s Agreements in principle with the Official Creditor Committee and Export-Import Bank of China on debt treatments consistent with program parameters were important milestones putting Sri Lanka’s debt on the path towards sustainability," stated Peter Breuer, IMF Senior Mission Chief. "The critical next steps are to  finalize the agreements with the official creditors and reach Agreements in Principle with the main external private creditors in line with program parameters in a timely manner. This should help restore Sri Lanka’s debt sustainability over the medium term."

Breuer clarified that delays in finalizing agreements with official creditors haven't been flagged as a concern. He acknowledged that converting agreements in principle into formal agreements can take time. However, he emphasized the importance of this process for solidifying debt relief efforts.

IMF Acknowledges Tax Burden, Underscores Importance of Social Safety Nets

The IMF acknowledged the significant hardship Sri Lankans are facing due to the ongoing economic crisis. Peter Breuer noted the substantial decline in real incomes and economic activity.

"We understand that Sri Lanka is in a significant crisis. Real incomes have declined substantially. In Dollar terms Sri Lanka lost about a sixth of its economic activity. GDP went down 15% in dollar terms in 2023 relative to 2022.  So certainly people of Sri Lanka feel that hardship everyday. So this tax burden, this population has experienced this tax burden before, and it is needed inorder to fund the essential services that the government is providing. It is providing common goods for everybody and if everybody wants to continue enjoying these common goods then everybody has to make contributions," Breuer explained. 

Sarwat Jahan, IMF Resident Representative in Colombo, highlighted the program's focus on protecting the most vulnerable.

"The crisis disproportionately impacts the poor and vulnerable," said Jahan. "The program includes a spending floor on social safety nets to ensure the government continues to support these populations during recovery."