Washington, DC, May 26, 2022: An International Monetary Fund (IMF) team led by Mr. Peter Breuer and Mr. Masahiro Nozaki conducted a virtual mission with the Sri Lankan authorities from May 9 to 24, 2022 on an economic program that could be supported by an IMF lending arrangement. The program has not been envisaged and only the IMF team has analyzed the country’s situation and the outcome of the mission is preliminary.
The mission’s observations are in tune with IMF policies of “…fiscal sustainability while protecting the vulnerable and poor; ensuring credibility of the monetary policy and exchange rate regimes; preserving financial sector stability, and structural reforms to enhance growth and strengthen governance.”
A final decision by the IMF to bail out Sri Lanka from the current tough economic situation remains to be seen, it has already defaulted on its debt and serious political unrest plagues the island nation. The standoff between protesters and the Rajapaksha clan government clinging to power continues. A strict IMF fiscal regime as a condition for a bailout could have a volatile outcome.
At the conclusion of the mission, the IMF team issued the following statement:
“Sri Lanka is facing difficult economic conditions and severe balance of payments problems. Recent economic indicators suggest that economic activities have been negatively affected by fuel and power shortages. Rising global food and oil prices have further added to the balance of payments pressures. Inflation has accelerated driven by many factors, including the shortages of goods, fuel price increases, and currency depreciation. In this context, we are deeply concerned about the impact of the ongoing crisis on the people, particularly the poor and vulnerable groups.
“The IMF team held technical discussions on a comprehensive reform package to restore macroeconomic stability and debt sustainability. The team made good progress in assessing the economic situation and in identifying policy priorities to be taken going forward. The discussions focused on restoring fiscal sustainability while protecting the vulnerable and poor; ensuring credibility of the monetary policy and exchange rate regimes; preserving financial sector stability, and structural reforms to enhance growth and strengthen governance. We expect that these discussions will help the authorities formulate their reform program.
“The team welcomed the appointment of financial and legal advisors to engage in a collaborative dialogue with their creditors as an important step towards restoring public debt sustainability. Since Sri Lanka’s public debt is assessed as unsustainable, approval by the Executive Board of an IMF-supported program for Sri Lanka would require adequate assurances that debt sustainability will be restored.
“IMF staff will continue to monitor the economic and political situation very closely and engage with the authorities to formulate concrete measures under an IMF-supported program, as well as broader stakeholders to support a timely resolution of the crisis. We reaffirm our commitment to support Sri Lanka at this difficult time, in line with the IMF’s policies.
“Staff express their gratitude to the authorities for their constructive engagement and support during the mission. ”