IMF approves second review of Sri Lanka's $2.9 billion bailout, warns of economic risks

IMF approves Sri Lanka's $2.9 billion bailout, warns of ongoing economic vulnerabilities and urges debt restructuring.

The International Monetary Fund (IMF) approved the second review of Sri Lanka's $2.9 billion bailout, but the global lender warned the economy remains vulnerable despite signs of recovery and urged Colombo to do more to restructure a hefty debt burden.

In a statement on Wednesday, the IMF said it will release about $336 million, taking total funding to around $1 billion, to the crisis-hit country and noted that signs of an economic recovery were emerging.

However, in a note of caution, it said the economy "is still vulnerable and the path to debt sustainability remains knife-edged."

The IMF called for a swift finalisation of the Memorandum of Understanding (MoU) with the Official Creditor Committee (OCC), which includes key lenders Japan and India, and final agreements with the Export-Import Bank of China.

Sri Lanka will focus on reaching in-principle agreement with bondholders and is in final stages of such an agreement with the China Development Bank, state finance minister Shehan Semasinghe told reporters.

"I cannot specify the timeline but both parties are very much interested in reaching an agreement. We are very hopeful of reaching consensus with bilateral creditors soon, possibly by the end of this month," Mr. Semasinghe said.

Cash-strapped Sri Lanka plunged into its worst financial crisis in more than seven decades in 2022 with a severe dollar shortage sending inflation soaring to a high of 70%, its currency to record lows and its economy contracting 7.3%.