Sri Lanka’s ongoing $2.9 billion bailout with the IMF might undergo its second review by mid-2024 if the country successfully meets its debt restructuring and revenue objectives, according to an official announcement on the 13th of December.

The IMF’s executive board recently approved the first review of the bailout, granting approximately $337 million to assist Sri Lanka in dealing with its severe financial crisis, marked by soaring inflation, currency devaluation, and depleted foreign reserves.

Following the island nation’s worst economic downturn since gaining independence in 1948, around $670 million has been disbursed to Sri Lanka from the IMF.

Peter Breuer, senior mission chief for Sri Lanka, outlined that an IMF delegation is scheduled to visit Sri Lanka in March, with the potential for finalizing the second review roughly two months later, contingent upon Sri Lanka’s ability to negotiate debt restructuring with official and private creditors.

Breuer emphasized that despite some progress and anticipated positive growth next year, sustained reforms are crucial for the economy to recover fully from its current crisis.

Although Sri Lanka’s economy is showing signs of stabilization post-bailout, it is still projected to contract by 3.6% this year. However, a modest growth of 1.8% is anticipated in 2024 as the economy gains momentum.

To adhere to the IMF program, Sri Lanka must enhance tax revenue, restructure underperforming state-owned enterprises, and fortify its reserves.

Breuer mentioned that China, as Sri Lanka’s primary bilateral creditor, might not need to be part of the Official Creditor Committee for debt restructuring, considering an agreement in principle to restructure approximately $4.2 billion of China EXIM Bank debt in October.

Following Sri Lanka’s successful completion of the first IMF review, the nation’s sovereign dollar bonds experienced increased trade activity, with prices rising between 49.1 to 50.4 cents in the dollar according to Tradeweb data. Shorter-dated bonds demonstrated stronger gains compared to longer-dated ones on this positive development.