Sri Lanka gains IMF's provisional agreement for $2.9 billion loan

Sri Lanka has reached a preliminary agreement with the International Monetary Fund (IMF) for a loan of about $2.9 billion, the global lender said on Thursday, as the country seeks a way out its worst economic crisis in decades.

The agreement, which Reuters first reported on Wednesday, is subject to approval by IMF management and its executive board, and is contingent on Sri Lankan authorities following through with previously agreed measures.

"This staff-level agreement is only the beginning of a long road ahead for Sri Lanka to emerge from the crisis," senior IMF official Peter Breuer told reporters in Colombo.

"The authorities have already begun the reform process and it will be important to continue on this path with determination."

IMF conditions for the loan also include receiving financing assurances from Sri Lanka's official creditors and efforts by the country to reach an agreement with private creditors.

Its programme, spread over four years, will aim to boost government revenue, encourage fiscal consolidation, introduce new pricing for fuel and electricity, hike social spending, bolster central bank autonomy and rebuild depleted foreign reserves.

The country's reserves stood at $1.82 billion as of July, according to central bank data.

"Starting from one of the lowest revenue levels in the world, the programme will implement major tax reforms. These reforms include making personal income tax more progressive and broadening the tax base for corporate income tax and VAT," the statement said.

Creditor collaboration

IMF's Breuer said the preliminary agreement highlighted the commitment of Wickremesinghe's government to comprehensive and significant reforms.

"This is a credible device to show to creditors that Sri Lanka is serious about engaging in reforms," he said.

Sri Lanka needs to restructure nearly $30 billion of debt, and Japan has offered to lead talks with its other main creditors, including regional rivals India and China.

"If creditors are not willing to provide these assurances, that would indeed deepen the crisis here in Sri Lanka and would undermine its repayment capacity," Breuer said.

Sri Lanka will also need to strike a deal with international banks and asset managers that hold the majority of its $19 billion worth of sovereign bonds, which are now classified as in default.

SS