Sri Lanka needs to raise fiscal revenue to maintain stability, IMF says

By Uditha Jayasinghe

(Reuters) -Sri Lanka must make further efforts to raise fiscal revenue if it is to maintain economic stability and restore debt sustainability, the International Monetary Fund said on Friday, after wrapping up a staff visit to the country.

After September's presidential election in the Indian Ocean nation, the global lender will discuss the timing for a review of progress in meeting key commitments as part of a $2.9- billion bailout, the IMF said in a statement.

The IMF has also provided Colombo and financial advisors of the country's bondholders an assessment on a provisional deal Sri Lanka reached last month to restructure $12.5 billion in debt.

"We encourage a swift resolution of the remaining steps to achieve debt sustainability and regain investor confidence. We will continue to support Sri Lanka’s ongoing debt restructuring efforts," the global lender added.

Cash-strapped Sri Lanka plunged into its worst financial crisis in more than seven decades in 2022 with a severe dollar shortage sending inflation soaring to a high of 70%, its currency to record lows and its economy contracting 7.3%.

The IMF bailout secured in March last year helped to stabilise economic conditions. The rupee has risen 7% in recent months and inflation slowed to 2.4% in July. The economy is expected to grow 3% this year for the first time since the crisis.

The country also signed agreements with Japan, India, China and other creditor nations in June to restructure about $10 billion in bilateral debt.

But Sri Lanka is heading to a presidential election on September 21 the outcome of which could potentially impact policy changes including crucial measures to put its public finances on track, combat corruption and attract fresh investment.

"With Sri Lanka’s knife-edged recovery at a critical juncture, sustaining the reform momentum and ensuring timely implementation of all program commitments are critical to cement the hard-won economic progress to date and put the economy on a firm footing," the IMF said.

(Reporting by Shivam Patel in New Delhi; Editing by Clarence Fernandez and Emelia Sithole-Matarise)

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