Cabinet authorizes to sign required documents as soon as Sri Lanka receives IMF approval

The Cabinet of Ministers has authorized the Finance Ministry Secretary or the Treasury’s Deputy Secretary to sign the Promissory Notes and other required documents as soon as Sri Lanka receives the IMF-supported Extended Fund Facility (EFF) approval from the IMF Executive Board.

The decision was taken during the Cabinet meeting held this evening (20), according to Cabinet Spokesman and Minister Bandula Gunawardene. 

Sri Lanka is expected to receive final approval for about $2.9 billion bailout from the International Monetary Fund (IMF) on Monday, a key step for the bankrupt nation to revive its economy from the worst crisis in decades. 

The funds are crucial to restore stability and debt sustainability for an economy mired in a recession. Through 2022, shortages of essential goods from fuel to medicines loomed large, stoking Asia’s fastest inflation and depleting funds.

Since defaulting on its dollar debt in May, Sri Lanka has taken tough measures to put its economy back on a steadier path, including cutting subsidies, raising taxes and loosening its control on the currency. It also increased borrowing cost to the most since 2001. 

Sri Lanka also secured debt assurances from bilateral creditors including India, China and Paris Club nations and initiated good-faith negotiations with private bondholders as pre-requisites to getting the bailout.

Sri Lanka defaulted on its foreign debt in April 2022 as the country plunged into its worst economic crisis, running out of cash to finance even the most essential imports and causing massive social unrest.

Widespread protests over economic mismanagement, acute shortages of food, fuel and medicines, and runaway inflation forced President Ranil Wickremesinghe’s predecessor Gotabaya Rajapaksa to flee the country and resign in July.

The IMF’s executive board was expected to sign off on Colombo’s bailout application later on Monday after a long delay in securing financial assurances from China, Sri Lanka’s largest bilateral lender.

Beijing had said this year it was offering a two-year moratorium on its loans to Sri Lanka, but the concession fell short of IMF expectations for the sustainability of the island’s debt.

President Wickremesinghe had said after China agreed to restructure its loans that he expected the first tranche of the $2.9 billion IMF package would be made available within the month.

--With agencies inputs