Macroeconomic Policies in Sri Lanka Are Starting to Bear Fruit, Says IMF

Macroeconomic Policies in Sri Lanka Are Starting to Bear Fruit, Says IMF

In a shock-prone world, economies must be more resilient—individually and collectively, advised the IMF in a press briefing held Thursday, May 16, 2024, in Washington, DC. According to IMF research, cooperation is critical, but greater protectionism could lead to fragmentation and even split nations into rival blocs just as fresh shocks expose the global economy’s fragility.

“Our studies indicate that global losses from fragmentation vary widely. They can range from 0.2% of global GDP all the way up to 7% of global GDP. To put that in context, 7% of global GDP, which would represent severe fragmentation, is equivalent to the combined size of Germany and Japan’s economies. The cost of fragmentation would be even higher should there be, for example, technological fragmentation in addition,” said Julie Kozack, Director of the Communications Department at the IMF.

IMF staff and the Sri Lankan authorities have reached a staff-level agreement on economic policies to conclude the second review of the 4-year EFF-supported program and the 2024 Article IV Consultation. Once the review is approved by IMF Management and completed by the IMF Executive Board, Sri Lanka will have access to about US$337 million in financing.

“With respect to Sri Lanka’s economic performance, macroeconomic policies in Sri Lanka are starting to bear fruit. Commendable outcomes include a rapid decline in inflation, robust reserve accumulation, and initial signs of economic growth, while also preserving stability in the financial system. Overall, program performance has been strong. The next steps with respect to debt restructuring are to conclude negotiations with external private creditors and to implement the agreements in principle with Sri Lanka’s official creditors. The domestic debt operations are largely completed. The initial debt restructuring negotiations with external bondholders ended in mid-April without an agreement, and discussions are continuing with a view to reaching an agreement in principle. On the official creditors’ side, these agreements in principle still need to be finalized,” said Kozack.

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