Sri Lanka would utilise the IMF's second tranche of the bailout deal to settle arrears owed to multilateral creditors while expediting the debt restructuring process, state Minister of Finance Shehan Semasinghe has said. Sri Lanka is now in a position to receive the second tranche of $330 million upon approval of the Staff-Level Agreement by the IMF Executive Board.

The Staff-Level Agreement will enable the World Bank, Asian Development Bank, and other multilateral financial institutions to make the remaining payments, further expediting debt restructuring efforts with international partners, Semasinghe said in a statement on Friday. The IMF had, in March this year, approved a 48-month, $2.9 billion extended arrangement under the Extended Fund Facility (EFF) to support Sri Lanka's economic policies and reforms.

Despite showing early signs of stabilisation, it said the full economic recovery was not yet assured. Sri Lanka's external position had weakened due to the prolonged debt restructuring discussions and reserve accumulation has slowed in recent months.

Sri Lanka needed to increase revenues and signal better governance by adopting tax measures. The IMF said it wanted to be sure that debt sustainability is being restored in Sri Lanka. The debt targets had been set in the IMF programme when it started in March. The targets involved debt stock, with respect to debt service in domestic and foreign currency and also with respect to debt relief that is needed within the programme period, the IMF stated on Friday.

(Edited by : Shweta Mungre)