Sri Lanka is nearing a staff-level agreement with the International Monetary Fund, according to people with knowledge of the situation, a key step to helping the crisis-hit country tap much-needed aid and recast its debt.
(Bloomberg) — Sri Lanka is nearing a staff-level agreement with the International Monetary Fund, according to people with knowledge of the situation, a key step to helping the crisis-hit country tap much-needed aid and recast its debt.
Negotiations have made progress and an agreement is likely to be reached, said the people, who asked not to be identified as the discussions are private.
Sri Lanka is seeking as much as $3 billion from the IMF as it deals with its worst economic crisis since independence and political turmoil that led to the formation of a new government.
Dwindling foreign-exchange reserves, crippling shortages of essential items and Asia’s fastest inflation have crippled the $81 billion economy. The nation’s forex stockpile stood at $1.82 billion in July, while the annual rate of consumer price increases surged to a fresh record of 64.3% in August.
Earlier Wednesday, Reuters reported that Sri Lanka has reached a preliminary agreement with the IMF for an emergency loan. The Reuters report, which cited four people with direct knowledge of the matter who it didn’t identify, gave few other details on the talks between President Ranil Wickremesinghe’s government and the IMF.
Following the report, the IMF said that a team from Washington had extended its visit by a day as discussions with local authorities continued, and that it will release a statement on Thursday and hold a press conference at 11 a.m. Colombo time on the Sri Lanka Extended Fund Facility Mission.
The nation’s central bank governor and finance secretary didn’t respond to phone calls seeking comment.
Sri Lankan dollar bonds due March 2030 rose Wednesday as much as 3.6 cents to 34.73 cents on the dollar, posting record gains.
Taxes, Reforms
The country, which earlier this year defaulted on its overseas debt for the first time, announced Tuesday a plan to raise tax rates and add reforms in an interim budget.
“The amended budget will help in economic recovery,” Wickremesinghe said in a speech in parliament.
Wickremesinghe said talks with the IMF were successful and in their final stages, adding that Sri Lanka plans to formulate a new public finance management law and set up a national debt management agency to improve its fiscal health.
Discussions on debt restructuring will be held with the main countries that provide loan assistance, Wickremesinghe also said on Tuesday. Besides the IMF, Sri Lanka is tapping India, Japan and China for bridge financing.
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