The IMF has approved a three-year $1.5 billion (1.32 billion euro) loan to support Sri Lanka's economic reform agenda. Sri Lanka received $2.6 billion from the IMF to boost its financial reserves in 2009.
The executive board of the International Monetary Fund (IMF) formally approved the loan to Sri Lanka on Saturday to support the South Asian island nation's economic reform agenda.
"The arrangement aims to meet balance of payments needs arising from a deteriorating external environment and pressures that may persist until macroeconomic policies can be adjusted," the IMF said in a statement.
Sri Lanka's new government in Colombo sought an IMF bailout immediately after taking power in January last year. But that request was denied as the IMF said the country's reserves were at a comfortable level.
But after the government went on a spending spree to implement its election pledges of higher public sector salaries and lower prices, the country of 20.5 million people faced a balance of payments crisis.
The photo above shows Sri Lanka's Colombo port, the Chinese-built Colombo International Container Terminal (CICT) commissioned in 2013.
Colombo returned to the negotiating table and agreed to an increase in value added tax (VAT) from 11 to 15 percent in April. It has also said it will scale down tax exemptions and promised to simplify revenue collection.
The goal will be to raise its tax-to-GDP ratio to 15 percent by 2020 from the current level of 11 percent.
The IMF has signed off on the loan with the first tranche of $168.1 million released and the remainder available in six instalments subject to quarterly reviews.
In 2009, Sri Lanka received $2.6 billion from the IMF to boost its financial reserves, which dropped below $1 billion at the height of fighting between Tamil Tiger rebels and troops.
