Sri Lanka economy shows 'tentative signs of improvement': IMF

Colombo: Sri Lanka’s bankrupt economy has shown "tentative signs of improvement," a top IMF official has said, underlining that this reform momentum must continue under strong ownership by both the authorities and the Sri Lankan people.

These remarks were made by International Monetary Fund Deputy Managing Director Kenji Okamura on Thursday at the end of his two-day official visit to the debt-trapped island nation.

“Sri Lanka’s economy is showing tentative signs of improvement, in part due to the implementation of critical policy actions. But the economic recovery remains challenging. Now, more than ever, it is essential to continue the reform momentum under strong ownership by both the authorities and the Sri Lankan people”, he said in a statement.

Okamura's visit followed the approval on March 20, 2023, by the IMF Executive Board of 48-Month arrangements of about USD 3 billion under the Extended Fund Facility (EFF) with Sri Lanka.

He said the current economic crisis has its genesis in policy missteps aggravated by external shocks.

“We discussed the importance of fiscal measures, in particular revenue measures, for a return to macroeconomic stability. I was encouraged by the authorities’ commitment to negotiating a debt strategy in a timely and transparent manner," he said.

"Continued open dialogue with the creditors will help to reach restructuring agreements to restore debt sustainability in line with the programme targets. Undoubtedly, safeguarding the stability of the financial sector is of utmost importance in this process”, he said.

The IMF believes it remains essential to protect the poor and the most vulnerable that have been disproportionately affected by the crisis.

The IMF comments came as President Ranil Wickremesinghe in a televised address on Thursday stressed the need to commit to the challenging economic reforms in order to get over the crisis.

Wickremesinghe promised the countrymen a future of economic stability without hardships, as he asked them to support the government's reform efforts for reviving the island nation's economy after its bankruptcy.

Wickremesinghe, who is also the finance minister, said: "These reforms will lead to decreased cost of living, improved standards of living, relief for the poor and a culture of transparency”.

He said the country's economy is gradually recovering thanks to the correct policies adopted by the government over the past nine months.

Debt-ridden Sri Lanka, still struggling to normalise its crisis-hit economy after it declared its first-ever debt default in April last year, is hopeful that inflation will reduce to single digits.

In April 2022, Sri Lanka declared its first-ever debt default, the worst economic crisis since its independence from Britain in 1948, triggered by forex shortages that sparked public protests.

Months-long street protests led to the ouster of the then-president Gotabaya Rajapaksa in mid-July. Rajapaksa had started the IMF negotiations after refusing to tap the global lender for support.