IMF says Sri Lanka's economic recovery shows signs of improvement but challenges remain

Debt-stricken Sri Lanka, which declared bankruptcy last year, is showing signs of ecomic improvement but its recovery still faces challenges, International Monetary Fund said Friday.

Indian Ocean island nation declared bankruptcy in April 2022 and said it was suspending repayment of its foreign debt. It reached an agreement with IMF in March on a nearly $3 billion bailout program over four years.

“Sri Lanka’s ecomy is showing tentative signs of improvement, in part due to implementation of critical policy actions. But ecomic recovery remains challenging," said IMF deputy managing director Kenji Okamura after concluding a visit to Sri Lanka, where he met with country’s top leers and officials.

Okamura said he welcomed Sri Lankan authorities’ “strong commitment to implement ir ambitious ecomic program, which is supported by IMF.”

IMF previously said Sri Lanka’s ecomy is expected to resume growing in 2024 after contracting 3% this year. expected ecomic growth of 1.5% next year hinges critically on ecomic reforms Sri Lanka has agreed to undertake.

“w, more than ever, it is essential to continue reform momentum under strong ownership by both authorities and Sri Lankan people,” Okamura said in a statement early Friday.

Sri Lanka’s foreign debt exceeds $51 billion, of which $28 billion must be repaid by 2027. Sri Lanka has w started negotiations with its creditors on debt restructuring.

“ current ecomic crisis has its genesis in policy missteps aggravated by external shocks. We discussed importance of fiscal measures, in particular revenue measures, for a return to macroecomic stability. I was encourd by authorities’ commitment to negotiate a debt strategy in a timely and transparent manner. Continued open dialogue with creditors will help to reach restructuring agreements to restore debt sustainability in line with program targets,” Okamura said.

Sri Lanka’s ecomic crisis and resultant shorts of essentials sparked riots last year, forcing n-President Gotabaya Rajapaksa to flee country and later resign.

Unsustainable debt, a severe balance of payment crisis on top of lingering scars of COVID-19 pandemic, along with government's insistence on spending scarce foreign reserves to prop up Sri Lankan rupee, led to a severe short of foreign currency and essentials such as fuel, medicine, cooking gas and food.

Although re are some signs of progress — with shorts reduced and day-to-day functions restored — under current President Ranil Wickremesinghe, government is still struggling to find money to pay its employees and conduct or ministrative functions.

re’s been growing public dissatisfaction over government’s recent move to increase taxes and electricity bills that came as part of commitment to obtain bailout pack from IMF.

government anunced 6% cuts in budgets of each ministry this year and plans to nearly halve size of military, which h swelled to more than 200,000 personnel due to a long civil war that ended in 2009.