IMF releases Sri Lanka loan despite restructure delays

The International Monetary Fund released $336 million as part of a bailout loan instalment for Sri Lanka despite delays in the crucial restructuring of its foreign debt, including to China, the Washington-based lender said Wednesday. The South Asian nation was starting to recover, but the economy was "still vulnerable and the path to debt sustainability remains knife-edged," the IMF said after its latest review.

Sri Lanka defaulted on its external debt in April 2022 after the country ran out of foreign exchange to finance even essential imports such as food, fuel and medicine. Months of protests forced then president Gotabaya Rajapaksa to step down after being accused of corruption and mismanagement and pushing the island into its worst economic crisis. The IMF board on Wednesday endorsed a staff-level agreement reached with Colombo in March to release the third tranche of a four-year $2.9 billion bailout.

The board welcomed Sri Lanka's efforts to reach debt restructure deals, but said the country must swiftly finalize agreements with bilateral lenders, private creditors and the Export-Import Bank of China. "Directors stressed the importance of seeking comparable, transparent, and timely completion of restructurings with external private creditors consistent with program targets," the IMF said in a statement. Beijing accounts for around 10 percent of the island's total foreign debt. China had agreed "in principle" to restructure Sri Lanka's debt in December, but neither Colombo nor Beijing had given details and the two are yet to strike a deal.

President Ranil Wickremesinghe has raised sales and personal income taxes, cut energy subsidies and pushed reforms and austerity measures in line with the IMF rescue deal. Sri Lanka's annual debt servicing is officially estimated at $6.0 billion with external debt, including government guaranteed borrowings, at $41.5 billion at the end of 2023, according to treasury data.