IMF discussions ‘to continue with Lanka on 4th review’

The International Monetary Fund said that discussions with Sri Lanka will continue on the fourth review of its $2.9 billion program after an IMF staff team visited amid global trade turmoil triggered by the US.

Sri Lanka, which plunged into a financial crisis due to a record shortage of dollars three years ago, has recovered strongly since securing a bailout in the form of a four-year Extended Fund Facility from the global lender in March 2023.

But this recovery could be affected by external shocks that are creating uncertainty, the IMF said in a statement.

As part of a barrage of tariffs on global trading partners, US President Donald Trump imposed a 44% tariff on goods from Sri Lanka this week, affecting about $3 billion of exports to the US, mostly apparel.

The full tariff was then suspended for three months, but Sri Lanka will still have to pay a baseline 10% like most other countries.

“More time is needed to assess the impact of the global shock and how its implications for Sri Lanka can be addressed within the contours of its IMF-supported program,” the IMF added.

Sri Lanka’s international bonds slipped as much as 2.5 cents, with much of the curve trading between 59-66 cents in the dollar, Tradeweb data showed.

The declines were in line with falls elsewhere among frontier market bonds, which have been at the sharp end of a selloff sparked by the tariff trade turmoil.

Increasing power prices, reducing tax exemptions, and rebuilding foreign exchange reserves were also mentioned by the IMF as areas that Sri Lanka must focus on.

Colombo needs to complete the review and get IMF executive board approval to receive about $334 million as the next tranche of its facility.

President Anura Kumara Dissanayake said in a video statement that Sri Lanka was in talks with the US to strengthen trade relations and committed to substantially reducing tariff and non-tariff barriers.