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Sri Lanka’s Foreign Financing Situation in 2024:shows Signs of Economic Recovery

In 2024, Sri Lanka saw improvements in its foreign financing situation, bolstered by increased foreign reserves and substantial international support from organizations such as the Asian Development Bank (ADB), the International Monetary Fund (IMF), and the World Bank.

By September 2024, Sri Lanka’s foreign exchange reserves had reached approximately $5.94 billion, enough to cover around four months of imports. 

This rise in reserves reflects positive shifts in the country’s external sector, which was aided by a reduction in the trade deficit, higher service account inflows, and increased remittances from workers abroad. 

Additionally, Gross Official Reserves grew by over $1 billion, reaching $5.4 billion by the end of May 2024. However, excluding currency swaps, usable reserves are lower, covering just over two months of imports, signaling vulnerability to external pressures if economic reforms falter.

A significant factor in stabilizing Sri Lanka’s economy has been international financial support. As of August 2024, the ADB disbursed $358.3 million to Sri Lanka, slightly exceeding the IMF’s $336 million in budget support loans. 

The IMF has also been crucial in helping Sri Lanka implement structural reforms aimed at restoring macroeconomic stability and ensuring debt sustainability.

Furthermore, the World Bank contributed $239.8 million in budget support loans, while Japan provided $20.1 million, including a grant of $1.3 million.

Despite these positive developments, Sri Lanka’s foreign financing faced challenges in the first quarter of 2024, when the country’s budget financing was negative due to debt repayments. 

Still, Sri Lanka’s overall foreign financing situation is improving, with the country entering 10 foreign financing agreements worth $398.7 million by August, primarily in loans. 

The total disbursements from January to August reached $1.01 billion, with 36% from the ADB, 33% from the IMF, and 24% from the World Bank. A large portion of these funds was allocated to budget support and key sectors such as energy, finance, and SME development.

Sri Lanka’s ongoing debt restructuring efforts have been critical, particularly negotiations with private creditors, who hold a significant portion of the country’s external debt. 

The IMF has emphasized that continued economic reforms are necessary to maintain financial stability.

 These reforms include increasing fiscal transparency, tackling corruption, and improving revenue collection. 

The IMF has noted some positive trends in Sri Lanka’s economy, including growth and lower inflation, while also highlighting the importance of social protection within the reform agenda.

The IMF’s Director for the Asia and Pacific Department, Krishna Srinivasan, has praised the Sri Lankan government for supporting the current reform agenda and noted that progress has been made in negotiations with official creditors.

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