10 November 2022 07:41 am
Following the progress so far made with the International Monetary Fund (IMF) for programme support and the country’s creditors to restructure debt and the key reforms already undertaken and to be implemented in future, the Sri Lankan economy is expected to enter the recovery path in the latter part of 2023, the Central Bank (CB) yesterday said.
However, the monetary authority warned that the economy’s recovery is contingent on the policymakers’ unwavering commitment to implementing policy reforms in a timely, holistic and efficacious manner while ensuring that such commitment remains unhampered by political and election cycles.
“This is imperative to prevent any oscillations of national policies in the crucial period ahead, in order to strengthen the economy’s resilience to external shocks, thereby ensuring its unwavering progress over the medium term,” the Central Bank said in its latest ‘Recent Economic Developments: Highlights of 2022 and Prospects for 2023’, which was published yesterday.
Sri Lanka struck a staff-level deal with the IMF on September 1 for a four-year, US $ 2.9 billion programme under the Extended Fund Facility (EFF). Following the staff-level deal, the Sri Lankan authorities began debt restructuring negotiations with the country’s official creditors. Financial assurances from creditors are required to activate the IMF bailout package. The Central Bank yesterday said the debt restructuring process has reached an advanced stage.
The Central Bank also said the IMF EFF programme would provide an opportunity for the country to embark on the much-needed and long-neglected structural adjustments, which would be instrumental in shaping the economy to progresses on a trajectory of greater stability and sustained growth.
Though it was previously speculated that the IMF board approval for Sri Lanka’s bailout package would be given this December, it now appears that such approval will be delayed, due to the possible delays in reaching an agreement with the creditors. Sri Lanka’s debt restructuring process remains complicated as a large majority of its foreign debt is with China and India, which are non-Paris Club members.
Meanwhile, the Central Bank noted that the much-expected near-term recovery of the economy is fraught with many challenges, due to the unprecedented scale of the crisis the domestic economy is facing and the global uncertainties emanating from the monetary policy tightening measures adopted by major central banks in response to surging inflation, the spillover effects of geopolitical tensions and thereby a looming global recession. Sri Lankan economy is estimated to shrink close to 9 percent this year.