The International Monetary Fund (IMF) announced on Thursday that it has reached a staff-level agreement with Sri Lanka to release the next tranche of the promised $3 billion bailout package to recover from the worst-ever financial crisis.

Sri Lanka will have access to $337 million totalling $1 billion from the Extended Fund Facility (EFF) which the global lender agreed to in March last year.

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“The IMF team reached staff-level agreement with the Sri Lankan authorities on the second review under the economic reform program supported by a 4-year EFF arrangement and concluded the 2024 Article IV Consultation discussions. The EFF arrangement was approved by the IMF Executive Board for a total amount of SDR 2.3 billion (about $3 billion) on March 20, 2023,” IMF Senior Mission Chief Peter Breuer and Deputy Mission Chief Katsiaryna Svirydzenka, who were in Sri Lanka for last two weeks, said in a statement.

“Upon completion of the Executive Board review, Sri Lanka would have access to SDR 254 million (about $337 million), bringing the total IMF financial support disbursed under the arrangement to SDR 762 million (about $1 billion),” the statement shared by the Central Bank of Sri Lanka stated.

The global lender also hailed Sri Lanka’s pact with the Official Creditor Committee (OCC) co-chaired by India, Japan and France and China Exim Bank for the recovery from the debt crisis.

“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,” the IMF said.

“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,” it added.

Praising Sri Lanka’s path to recovery from bankruptcy, the IMF said that “the economic situation is gradually improving. Growth turned positive after six consecutive quarters of contraction, registering 1.6 per cent and 4.5 per cent y-o-y growth in the third and fourth quarters of 2023 respectively”.

“High-frequency economic indicators point to a continued pick-up in manufacturing, construction, and services. Inflation has come down from a peak of 70 per cent in September 2022 to 5.9 per cent in February 2024. Gross official reserves increased to $4.5 billion at end-February 2024 with sizeable foreign exchange purchases by the central bank,” it added.

However, the Washington-based lender warned that while inflation has decelerated faster than expected, continued monitoring was warranted to help anchor inflationary pressures and support macroeconomic stability. “Against ongoing external uncertainty, it remains important to continue to rebuild external buffers through strong reserves accumulation,” it said.

Following the Covid-19 pandemic and the financial crisis that affected the world, Sri Lanka faced its worst-ever economic calamity and in April 2022 the Indian Ocean island declared bankrupt. Sri Lanka suspended repayment on nearly $83 billion in local and foreign debts amid a severe foreign exchange crisis and shortages of essential food, fuel, electricity and medicine.

India, the closest neighbour rushed for assistance and provided over $4 billion in the way of credit lines, a currency swap arrangement and deferred import payments.