It will pave the way towards providing Sri Lanka with immediate access around US $336 million third tranche of the bailout to support its economic policies and reforms.
The International Monetary Fund says sustaining the reform momentum is critical to safeguarding the hard-earned gains of Sri Lanka up to now, at a time where Sri Lanka facing considerable uncertainties associated with the upcoming presidential elections and ongoing debt restructuring.
IMF Senior Mission Chief for Sri Lanka Peter Breuer stated that the IMF fully respect the democratic process for elections to take place in any country and they adapt to the relevant process.
Performance under the program has been strong. All quantitative targets for end-December 2023 were met, except the indicative target on social spending.
Most structural benchmarks due by end-April 2024 were either met or implemented with delay. Nevertheless, the economy is still vulnerable and the path to debt sustainability remains knife-edged.
Sri Lanka has made substantial progress towards advancing debt restructuring to restore debt sustainability.
It has to finalise Memorandum of Understanding with the Official Creditor Committee soon and enter into final agreements with the Export Import Bank of China considering it as a priority,
Although Sri Lanka has been able to get "in-principal" approval for debt restructuring from all its bilateral creditors, including India and China, actual debt restructuring may last the whole of 2024.
This prediction was consequent to the rejection of international bondholders' proposal to restructure more than $12 billion in debt by the state authorities during London talks in April 2024\
Some of the proposal's "baseline" assessments and a lack of a contingency option in the case of continued economic weakness were the two main reasons the deal was not agreed, the government said in a statement.
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Sri Lanka on the verge of balance of payments crises
Sri Lanka’s central bank is projecting 3.0 percent economic growth and a recovery in private credit to 8.5 percent in 2024 from a 0.6 percent contraction in 2023, in an outlook for the next year.
Exports are projected at 12.9 billion US dollars from 11.9 billion dollars. Imports are expected to recover to 20 billion dollars in 2024 from 16.8 billion in 2023.
Sri Lanka earns foreign exchange from remittances and also tourism to pay for imports and also repay debt or build reserves as long as the central bank does not cut rates with inflationary open market operations and easy standing facilities to trigger balance of payments crises.
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3.0 percent economic growth
Central Bank is projecting 3.0 percent economic growth and a recovery in private credit to 8.5 percent in 2024 from a 0.6 percent contraction in 2023, in an outlook for the next year.
Exports are projected at 12.9 billion US dollars from 11.9 billion dollars. Imports are expected to recover to 20 billion dollars in 2024 from 16.8 billion in 2023.
.The central bank is projecting 3.4 months of gross official reserves or about 5.6 billion dollars based on the 20 billion in imports and a 5 percent of GDP external current account surplus is expected comparing to a 3.1 percent surplus in 2023, when foreign aid dried up after a default.
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Budget revenue target to miss for 33 rd year in 2024
Sri Lanka is projected to fall short of its budget target on revenue to GDP (gross domestic product) for the 33rd consecutive year in 2024, according to the recently released ‘State of the Budget Report 2024’.
For 2024, the government is expecting revenue of LKR 4,164 billion, a 42% increase from its revised projections for 2023. However, the State of the Budget Report projects a 14% shortfall, with revenue of only LKR 3,570 billion.
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Debt volume increased due to rupee fluctuations’
Sri Lanka ‘s present foreign currency-denominated debt volume has increased despite the suspension of all external debt repayments as a result of rupee fluctuations, finance ministry sources spelled out.
According to the ministry’s statistics quarterly debt report 2024, Sri Lanka’s government debt has increased by US$ 4 billion to $100 billion as at end March 2024 from end 2023.
Of this total external debt, 57 percent is domestic debt, 37 external debt and 15 percent commercial loans.
.The biggest driver of the increase in the dollar value of the debt stock during this period was the appreciation of the rupee from Rs. 324/US$ in end December 2023 to Rs. 301/US$ in end March 2024, finance ministry statement confirmed.
Naturally, this leads to the dollar value of the component of rupee denominated domestic debt increasing even in the case of the absolute rupee debt remaining unchanged it added.
In reality, the rupee denominated domestic debt has increased only by about 1.5percent during the first quarter of 2024