The International Monetary Fund (IMF) has reached a staff-level agreement with crisis-hit Sri Lanka, the first step ahead of a possible $ 2.9 billion Extended Fund Facility that the Fund has made contingent on assurances from the island nation’s creditors. 

“IMF staff and the Sri Lankan authorities have reached a staff-level agreement to support Sri Lanka’s economic policies with a 48-month arrangement under the Extended Fund Facility (EFF) of about US$2.9 billion,” the Fund announced on Thursday, at the conclusion of its mission’s visit to Colombo. 

“The objectives of Sri Lanka’s new Fund-supported program are to restore macroeconomic stability and debt sustainability, while safeguarding financial stability, protecting the vulnerable, and stepping up structural reforms to address corruption vulnerabilities and unlock Sri Lanka’s growth potential,” it said. 

Pointing to what appears a challenging road ahead for Sri Lanka, which opted for a pre-emptive sovereign default in April, the IMF delegation, addressing a press conference in Colombo, said debt relief from Sri Lanka’s creditors and additional financing from multilateral partners “will be required” to help ensure debt sustainability and close financing gaps. Sri Lanka’s creditors include International Sovereign Bond holders, to whom the island owed the largest chunk of its debt, multilateral agencies, and bilateral lenders, including China, Japan, and India. 

“Financing assurances to restore debt sustainability from Sri Lanka’s official creditors and making a good faith effort to reach a collaborative agreement with private creditors are crucial before the IMF can provide financial support to Sri Lanka,” the Fund added.