Colombo, Apr 29: The IMF has agreed a USD 1.5 billion loan for cash-strapped Sri Lanka to support government's reform agenda for the next three years and help lower its borrowing costs and fix its finances.
"I am pleased to announce that, in support of the government's economic reform agenda, the Sri Lankan authorities and the IMF have reached a staff-level agreement on a 36-month Extended Fund Facility (EFF) for 185 per cent of Sri Lanka's quota in the IMF (about SDR billion or USD 1.5 billion)," a statement from Todd Schneider, IMF mission chief for Sri Lanka said.
This agreement will be subject to completion of prior actions and approval by the IMF's Executive Board, which is expected to consider Sri Lanka's request in early June. This will also enable Sri Lanka to receive an additional USD 650 million in other multilateral and bilateral loans, bringing total support to about USD 2.2 billion, IMF added.
This facility supports the governments economic reform agenda for the next three years. The IMF wants the government to make fundamental changes to tax policy to boost tax revenues and smaller fiscal deficits, lower borrowing, reduce the overhang of public debt, and ease pressure on the balance of payments.
The IMF advocates action to eliminate tax exemptions, tax holidays and special rates to broaden the tax base and create a tax system that is simple, efficient, and more equitable. Important structural reforms will also support growth and competitiveness objectives.
The government plans to review and reform the external tariff structure to reduce effective rates of protection while simultaneously pursuing new trade agreements.
Sri Lanka is facing refinancing concerns that prompted Fitch Ratings to downgrade the nation's debt. The nation last sought help from the IMF in 2009 to bolster its international reserves following the end of a three-decade old civil war, and received the final tranche of a USD 2.6 billion loan in 2012.