Sri Lanka’s central bank cut interest rates on Tuesday as the prime minister visited China in search of a debt restructuring deal critical to keeping the IMF bailout alive.
Transport Minister and government spokesman Bandula Gunawardana said Prime Minister Dinesh Gunawardena was in Beijing, the island’s biggest bilateral creditor.
“We are in the final stages of restructuring our external debt and the prime minister is in China for that purpose,” Gunawardana told reporters in Colombo.
The Central Bank of Sri Lanka said the economy has been recovering since the second quarter of last year, helping it cut its key lending rate from 10 percent to 9.5 percent.
The deposit rate also fell 50 basis points to 8.5%, the first cut in four months.
The bank said it would support “the ongoing recovery in economic activity”, adding that the country was close to completing the restructuring of its bilateral loans and international government bonds.
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Bank governor Nandalal Weerasinghe said deals with bilateral creditors and bondholders must be completed before June for Sri Lanka to proceed with a four-year, $2.9 billion International Monetary Fund bailout.
The first tranche of $330 million of the program was committed in March last year.
The IMF has called for speeding up negotiations to ensure debt sustainability for Sri Lanka, which defaults on its $46 billion in foreign loans in April 2022.
“We expect to see rapid progress … (in) reaching an agreement with commercial creditors, international bondholders, as well as the China Development Bank,” IMF Sri Lanka chief Peter Breuer said last week.
The central bank said the economy had grown since the second half of last year, to contain the overall contraction in 2023 to 2.3%.
That compared to a 7.3% contraction in 2022, when an unprecedented economic crisis hit the nation and months of protests forced then-president Gotabaya Rajapaksa to step down in July 2022.
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His successor Ranil Wickremesinghe doubled taxes, slashed generous energy subsidies and raised prices of staples to boost government revenues.
Tourism and remittances from abroad have also increased. The number of tourists jumped to 210,000 in December, more than double the 91,900 a year earlier, according to official figures.
Source: AFP