The International Monetary Fund (IMF) approved the second review of Sri Lanka’s $2.9 billion bailout, but the global lender warned the economy remains vulnerable despite signs of recovery and urged Colombo to do more to restructure a hefty debt burden.
In a statement on Wednesday, the IMF said it will release about $336 million to the crisis-hit country and noted that signs of an economic recovery were emerging.
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However, in a note of caution, it said the economy “is still vulnerable and the path to debt sustainability remains knife-edged.”
The IMF called for a swift finalization of the Memorandum of Understanding (MoU) with the Official Creditor Committee (OCC), which includes key lenders Japan and India, and final agreements with the Export-Import Bank of China.
Cash-strapped Sri Lanka plunged into its worst financial crisis in more than seven decades in 2022 after its foreign exchange reserves sank to record lows.
A severe dollar shortage in the country sent inflation soaring to a high of 70%, its currency into freefall and the economy into a sharp 7.3% contraction.
The IMF bailout secured in March last year helped stabilise economic conditions somewhat.
The rupee currency has risen 7% in recent months and inflation slowed to 0.9% in May, though demand remains soft and the debt restructuring talks are keeping markets on edge.
