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Sri Lanka moves to stabilize economy amid inflation hike and IMF bailout conditions

Sri Lanka moves to stabilize economy amid inflation hike and IMF bailout conditions

In response to a surge in energy costs that escalated inflation in October 2023, Sri Lanka has taken significant steps to meet the conditions of the International Monetary Fund’s (IMF) $3 billion bailout and associated loan program. The Central Bank of Sri Lanka enacted its third policy rate cut this year, aimed at reviving economic growth and curbing real borrowing costs.

The consumer price index in Colombo recorded a 1.5% year-on-year increase, which was less than the projected 2.3% gain but above September’s 1.3%. Despite warnings about a possible reversal of disinflation due to energy tariffs and tax increases, the Central Bank anticipates price gains stabilization at a 5% target level.

In compliance with key prescriptions under the IMF loan program, Sri Lanka increased electricity tariffs by approximately 20% to mitigate fiscal risks from state-owned enterprises. These measures are part of the country’s efforts to meet the conditions attached to the IMF bailout.

The Central Bank’s monetary policy review is scheduled for Nov. 23, while the annual budget announcement is set for Nov. 13. Both of these events will provide more insight into Sri Lanka’s economic strategy in light of the recent inflationary pressures and IMF conditions.

In addition to domestic measures, Sri Lanka has secured preliminary approval for a $330 million IMF loan payout and is currently engaged in debt restructuring discussions with an official creditors committee co-chaired by India, Japan, and France. The committee has made substantial progress in technical work and is about to submit a restructuring proposal to local authorities.

These combined efforts reflect Sri Lanka’s commitment to stabilizing its economy and meeting the terms of its IMF loan agreement amid rising inflation and energy costs.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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