Sri Lanka requests IMF bailout to tackle budget deficit

Sri Lanka has made a formal request for an IMF bailout package to aid its struggling economy.
Sri Lanka has made a formal request for an IMF bailout package to aid its struggling economy.PHOTO: REUTERS

COLOMBO (AFP) - Sri Lanka has made a formal request for an International Monetary Fund (IMF) bailout package to aid its struggling economy after a sharp slowdown in growth and with its budget deficit widening, officials said on Saturday (Feb 6).

The IMF confirmed the island nation had asked for assistance, but did not give details on the value of a potential programme or say whether it would grant the request.

"The IMF has received a request for a program with Sri Lanka," the fund said in a statement from its headquarters in Washington DC.

Sri Lanka enjoyed a blistering economic growth rate averaging more than 8.0 percent for two years after a prolonged civil war ended in 2009.

But the pace of expansion has since slowed, falling to 4.8 per cent in the third quarter of 2015, according to official data.

Prime Minister Ranil Wickremesinghe told Parliament last month that he was keen on negotiating an IMF bailout to deal with the fallout of a global economic downturn on his country of 21 million people.

The IMF, which sent a mission this week to review Sri Lanka's economy, said Saturday it had warned the authorities they should make a "stronger effort" to immediately reduce the budget deficit.

"The mission has advised the government to urgently make a stronger effort to narrow the fiscal deficit and put the public finances on a sustainable path," the IMF said in a statement.

Sri Lanka's government sought an IMF bailout immediately after taking power in January last year but the fund turned down the request, saying the country's reserves were at a comfortable level.

It received US$2.6 billion from the IMF in 2009 to boost its financial reserves, which had dropped below US$1 billion at the height of fighting between Tamil Tiger rebels and government forces.

The IMF also said on Saturday it had warned of rising debt levels saying the Sri Lankan government had been unable to keep to its budget deficit target last year and that it was unlikely to meet it in 2016.

"These imbalances are also set against an increasingly less benign external environment," the statement said.

"Set against such risks, the mission emphasised the urgent need for Sri Lanka to bolster its economic defences."