According to sources familiar with the matter, Sri Lanka is in talks with the International Monetary Fund (IMF) to borrow at least $3 billion through the lender’s extended fund facility (EFF).
The government expects another round of technical talks with the IMF in early June and hopes to reach a staff-level agreement by the end of the month, according to two anonymous sources.
An IMF spokesperson did not immediately respond to a request for comment. Sri Lanka’s finance ministry and central bank did not respond to requests for comment.
Sri Lanka has requested a bailout plan to help it recover from its worst economic crisis since its independence in 1948. It defaulted on some foreign debt earlier this year and is now struggling to pay for basic imports such as fuel and medicine.
According to the IMF’s website, an EFF program, which would be the 17th IMF plan for the country, requires countries to implement structural economic reforms “to correct deep-rooted weaknesses.” Once approved, these programs typically last three years with a four-and-a-half year grace period to begin repaying the loan.
A $3 billion deal would be nearly four times the country’s IMF quota.
The IMF said last week that it was negotiating a “comprehensive” reform package with Sri Lanka, but did not specify what kind of program was being negotiated.
Prime Minister Ranil Wickremesinghe, who took office in May after his predecessor, Mahinda Rajapaksa, resigned in the face of mass protests, intends to present an interim budget within weeks.
The government announced a taxation overhaul to boost revenue on Tuesday, raising corporate tax and increasing the value added tax (VAT) rate to 12% from 8% with immediate effect.
Sri Lanka recently appointed financial and legal advisers to begin discussions with bondholders and bilateral lenders like China and Japan.