COLOMBO, Oct 4, 2024 (BSS/AFP) - Sri Lanka's painful austerity measures were "bearing fruit" and must be sustained, the International Monetary Fund said Friday as the country's new president sought changes to its $2.9 billion bailout.

Leftist leader Anura Kumara Dissanayake won last month's presidential election promising to reverse steep tax hikes, raise public servant salaries and renegotiate an unpopular IMF bailout secured by Colombo last year.

The avowed Marxist held his first meeting with Fund representatives in Colombo this week, saying he wanted to reduce the tax burden on lower income households.

In response, the Washington-based lender of last resort stressed that it was important not to jeopardise Sri Lanka's hard-won economic recovery.
"Reform efforts are bearing fruit in terms of reviving economic growth, lowering inflation, boosting reserves and improving revenue mobilisation," spokesperson Julie Kozack said in Washington.

"Important vulnerabilities and uncertainties do remain, and this means that sustaining reform momentum is critical."

Sri Lanka can draw down a fourth tranche of $336 million in IMF funds only if it is satisfied that leaders are sticking to the revenue and spending targets of the rescue plan.

Dissanayake's office said Thursday he reaffirmed "broad agreement" with the objectives of the IMF programme but "emphasised the importance of achieving these objectives through alternative means that relieves the burden off the people".

The new president has said he also wants to conclude a deal to restructure $12.5 billion in international sovereign bonds and secure more concessions for the cash-strapped nation.

Analysts say Dissanayake has little room to reshape the terms of the IMF deal.

"There are certain red lines that the IMF will not agree to negotiate," Murtaza Jafferjee of the Colombo-based economic think tank Advocata told AFP soon after Dissanayake's election.

The IMF was unlikely to budge on core components of the bailout, including a ban on printing money as well as revenue and spending targets agreed by the last administration, he said.

Sri Lanka defaulted on its $46 billion foreign debt in 2022 after running out of foreign exchange during its worst-ever financial crisis.

The 2023 IMF bailout helped end crippling shortages of food, fuel and medicine and returned Sri Lanka's economy to growth, but its austerity measures left millions struggling to make ends meet.

Dissanayake, a member of a once-marginal leftist party, was elected on the back of public resentment over perceived corruption and mismanagement that precipitated the economic bust.

Days after he was sworn into office, he called snap parliamentary elections for next month.

Any fresh deal with bondholders or the IMF will require approval by the next parliament, which is due to hold its first session on November 21.