The International Monetary Fund (IMF) has cleared the second tranche — of about US$337 million — of the Extended Fund Facility (EFF) to Sri Lanka, based on the debt treatment plan drawn up by the crisis-battered island nation and its bilateral creditors.

“Sri Lanka’s agreements-in-principle with the Official Creditors Committee and Export-Import Bank of China on debt treatments are consistent with the EFF targets. They are an important milestone putting Sri Lanka’s debt on the path towards sustainability”, a senior official in Washington DC told a virtual press conference late Tuesday.

With the second tranche coming in, Sri Lanka has received about $670 million of the total $3 billion it hopes to receive from the Fund, to recover from last year’s historic financial crash that put citizens through acute shortages and long power cuts, while pushing the country into bankruptcy.

Sri Lanka reaches agreement with India, Paris Club on debt treatment

In November, Sri Lanka reached an “agreement-in-principle” with India and the Paris Club group of creditors including Japan to recast its debt owed to them. China, too, is said to have agreed to treat its Sri Lanka loans on comparable terms. The government is yet to make the terms of either agreement public. “A swift completion and signature of the Memoranda of Understanding with the official creditors is important,” the IMF said.

While China, India and Japan are Sri Lanka’s top three bilateral creditors, the largest chunk of the island’s debt, accumulated through International Sovereign Bonds (ISBs), is owed to private creditors. Emphasising the need for “timely implementation” of the agreements with the official lenders, the Fund also underscored urged Sri Lanka to reach a resolution with external private creditors “on comparable terms”.  

No ‘political strings attached’ to China’s support for Sri Lanka: Xi tells Ranil  

Meanwhile, the Fund noted that Sri Lanka has made “commendable progress” towards restoring debt sustainability, raising revenue, rebuilding reserves buffers, reducing inflation, and safeguarding financial stability. “Strong commitment to improving governance and protecting the poor and vulnerable remains critical,” the IMF said, even as scores of Sri Lankans grapple with the impact of the austerity measures taking effect. In addition to higher, mostly across-the-board indirect taxes, citizens are struggling to keep up with spiralling utility bills, especially electricity, following a three-fold increase in rates. The Ceylon Electricity Board recently said it disconnected some 5 lakh power connections owing to non-payment of bills by consumers. 

(Meera Srinivasan is The Hindu’s correspondent in Colombo)