Photo – Reuters

Crisis-hit Sri Lanka has reached a preliminary agreement with the International Monetary Fund (IMF) for a nearly $2.9 billion loan, the international lender said in a statement on Thursday. Reuters news.

“The objectives of Sri Lanka’s new fund-supported program are to restore macroeconomic stability and credit sustainability,” said a statement outlining the 48-month-long arrangement under the IMF’s extended funding facility.

The agreement is contingent on the Sri Lankan authorities following previously agreed steps, subject to the approval of IMF management and its Executive Board.

In addition to ensuring efforts to reach a cooperative agreement with private lenders, the IMF also requires assurances of financing from Sri Lanka’s public lenders.

“Debt relief from Sri Lanka’s creditors and additional financing from multilateral partners will be needed to ensure debt sustainability and close the financing gap,” the statement added.

The IMF program will aim to increase government revenues to support fiscal consolidation, set new prices for energy and electricity, increase social spending, strengthen central bank autonomy and rebuild the country’s depleted foreign reserves.

The program will implement major tax reforms, starting with one of the lowest income levels in the world, the statement said. These reforms include making personal income tax more progressive and broadening the tax base for corporate income tax and VAT.’

Sri Lanka needs to restructure nearly $30 billion in debt. It has also offered to lead talks with other major creditors, including Japan, India and China.

It also has to strike a deal with the international banks and asset managers that hold the bulk of its $19 billion worth of sovereign bonds, which are now classified as in default.

The debt-ridden country has sought up to $3 billion from the IMF to stave off its worst economic crisis since independence from Britain in 1948.

(September 1)