IMF board approves first review of bailout deals reached with Sri Lanka and Bangladesh
Business
The South Asian nations are facing a severe financial crisis, resulting in rising cost of living
COLOMBO/WASHINGTON (Web Desk/Reuters) – Sri Lanka and Bangladesh – the two South Asian nations facing a serious financial crisis – managed to overcome the final hurdle related to the first review of the deals they had achieved with the International Monetary Fund (IMF), which will lead to the release of second tranches to them.
In this connection, the IMF said its executive board cleared the first review of Sri Lanka's about $3 billion bailout on Tuesday, providing about $337 million in funds to help tackle the fallout from the country's worst financial crisis in decades.
The South Asian island nation is recovering from its worst financial crisis since its independence in 1948 that sent the economy into freefall last year with soaring inflation, currency devaluation and low foreign reserves.
The total amount sent so far to Sri Lanka now stands at about $670 million, according to the IMF.
"A swift completion and signature of the Memoranda of Understanding with the official creditors is important. Timely implementation of the agreements, together with reaching a resolution with external private creditors on comparable terms, should help restore Sri Lanka's debt sustainability over the medium term," said Kenji Okamura, Deputy Managing Director of the IMF.
The economy, however, began to stabilise after Sri Lanka secured a bailout from the global lender in March. It reached a staff level agreement on its first review in October but had to wait for the board's approval till an agreement was reached with bilateral creditors to restructure part of its foreign debt.
Sri Lanka's parliament approved a hike in value-added tax (VAT) to 18 per cent from 15pc on Monday to meet revenue targets set under the IMF programme.
Similarly, the IMF executive board also cleared the first review of Bangladesh's $4.7bn bailout – a decision leading to disbursing $689.8m in funding to Dhaka as it battles high inflation ahead of national elections in January.
The IMF provided Bangladesh with immediate access to about $468.3m and also made available $221.5m in support of the country's climate change agenda.
Sharply rising cost of living have sparked violent protests in recent months in Bangladesh as Prime Minister Sheikh Hasina's government struggles to pay for costly energy imports due to shrinking dollar reserves and a weakening Taka currency.
The IMF said Bangladesh's monetary policy should be tightened to restore near-term macroeconomic stability, supported by neutral fiscal policy and greater exchange rate flexibility.
"Bangladesh's economy is navigating multi-faceted economic challenges. Despite a difficult external environment, program performance has been broadly on track..." Antoinette Sayeh, the deputy managing director of IMF, said.
"Near-term policies should continue to focus on containing inflation," Sayeh added.
The IMF projected real GDP growth at 6pc in 2024 for Bangladesh and expected inflation to moderate to 7.25pc year over year by the end of 2024.
Bangladesh received an immediate disbursement of about $476m when the IMF approved the loans in January.
