IMF Executive Board completes Fourth Review under EFF facility with Sri Lanka

The Executive Board of the International Monetary Fund (IMF) completed the Fourth review under the 48-month Extended Fund Facility (EFF) Arrangement, allowing the authorities to draw SDR254 million (about US$350 million) on Tuesday.

This brings the total IMF financial support disbursed so far to SDR1.27 billion (about US$1.74 billion). The EFF arrangement for Sri Lanka was approved by the Executive Board on March 20, 2023. The program supports Sri Lanka’s efforts to durably restore macroeconomic stability by (I) restoring fiscal and debt sustainability while protecting the vulnerable, (ii) safeguarding price and financial sector stability, (iii) rebuilding external buffers, (iv) strengthening governance and reducing corruption vulnerabilities, and (v) enhancing growth-oriented structural reforms, the IMF said in a statement. 

The Executive Board reviewed a report from the Managing Director on the inadvertent provision of inaccurate data by Sri Lanka on the ceiling of the central government’s stock of expenditure arrears.

The under-reporting of the arrears stock identified through a detailed analysis of budget line appropriations gave rise to noncomplying purchases and a breach of Sri Lanka’s obligations under Article VIII, Section 5. The authorities have worked openly and closely with IMF staff to provide corrected data and have undertaken several corrective measures related to the clearing and
reporting of arrears.

"They are also committed to improving reporting and data verification practices going forward in line with IMF technical assistance. Based on these actions, the Executive Board approved the authorities’ request for waivers of non-observance," 

Following the Executive Board’s discussion, Kenji Okamura, Deputy Managing Director and
Acting Chair said in a statement that Sri Lanka’s performance under the Fund-supported arrangement is generally strong with some
implementation risks being addressed.

"Reforms are bearing fruit, with economic growth strengthening, inflation remaining low, reserves accumulating, and fiscal revenues improving. The debt restructuring process is nearing completion. The economic outlook is positive, but downside risks have increased. In case shocks materialize, the authorities should work closely with the Fund to assess the impact and formulate policy responses within the contours of the program. Steadfast program implementation will be crucial," he said.