Sri Lanka nears $345 million IMF bailout draw

The International Monetary Fund said Monday it had reached a preliminary agreement with Sri Lanka that will allow the country to access about $345 million from its $2.9 billion bailout programme.

The Washington-based lender said Sri Lanka's economy had recorded 11 consecutive quarters of expansion after contracting 7.3 percent in 2022. Sri Lanka secured the four-year $2.9 billion IMF rescue package in 2023 after its worst economic crisis, which included a sovereign default on $46 billion of external debt in 2022.

The IMF warned that the recovery still faced risks from higher energy prices, the El Nino climate phenomenon, global trade policy and uncertainty over the duration and intensity of the Middle East war.

The lender also criticised the government's decision to reinstate a $126 million diesel subsidy, saying fuel prices should continue to adjust in line with international markets while protecting vulnerable households.

Sri Lanka's central bank recently raised interest rates by 100 basis points to 8.75 percent. The IMF said the central bank should be ready to tighten monetary policy further if higher energy prices trigger a second round of inflation.

The latest agreement clears the way for what is expected to be the penultimate disbursement under the programme, which is due to expire in March. Sri Lankan authorities have not decided whether to seek a new IMF arrangement when the programme ends.