(Bloomberg) -- The International Monetary Fund said discussions are continuing with Sri Lanka on whether it’s meeting targets under a $3 billion bailout program, a necessary step before further funds can flow to the nation. 

An IMF team completed its visit to Sri Lanka as part of its first review of the funding pact, saying “significant progress on important reforms” had been made.

“Discussions will continue towards reaching a staff-level agreement in the near term that will maintain the reform momentum needed to allow Sri Lanka to emerge from its deep economic crisis,” the Washington-based lender said in a statement. 

Sri Lanka will have to hold more talks with the IMF to ensure it can meet its targets, a person familiar with the matter said earlier. The discussions could be held in Morocco on the sidelines of the annual IMF meetings next month, or in Washington shortly after, the person added. 

The IMF’s loan program has been a catalyst for Sri Lanka’s economy to recover after the worst crisis in its independent history. As part of the bailout, the government needs to reform its state-owned enterprises and improve revenue generation. It’s also required to bring the nation’s debt to a sustainable level after an unprecedented default last year.

Meantime, some members on the committee of Sri Lanka’s official creditors are pushing to reach a deal to restructure the nation’s debt without the participation of China, Bloomberg reported earlier, citing people familiar with the matter.

The members want the group of major creditors, including the US, Japan and India, to sign a memorandum of understanding with Sri Lanka around the time of the IMF and World Bank meetings in October, said the people, who asked not to be identified as the discussions are private.

China, which held about 10% of Sri Lanka’s external debt as of the end of last year, isn’t a part of the group and is pursuing separate bilateral talks.

See: Sri Lanka Creditors Said to Seek Deal Without Waiting for China

Sri Lanka’s economy is showing early signs of stabilizing, with inflation coming down and foreign exchange reserves improving, the IMF said. Even so, “full economic recovery is not yet assured,” it said. 

“Sustaining the reform momentum is critical to put the economy on a path towards lasting recovery and stable and inclusive economic growth,” it said.

A staff level agreement outlines the next set of revised targets and reform measures for subsequent reviews. The completion of the first review and a subsequent IMF board approval would lead to the disbursement of $330 million for the second tranche.


©2023 Bloomberg L.P.