Sri Lanka on Tuesday announced further measures to tighten its finances ahead of reaching an agreement with its main creditors on the anticipated IMF bailout expected in the island nation’s ongoing economic crisis caused by forex shortages.

Cabinet spokesman Bandula Gunawardena said that a further one percent cut from the budgetary allocations of each government ministry would be slashed.

The money is to be added to the ministry of health allocation to purchase urgent medicine. The medicine supplies have run dry due to the forex crisis despite international assistance being received.

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Last week the government proposed a five percent cut from all ministry allocations.

“Due to a shortfall of government revenue, we have taken measures to cut spending. Public salaries, pensions and welfare activities must continue despite hardships," he said.

Gunawardena said the state revenue is expected to rise this year with the proposed tax reforms introduced.

In another tightening measure, the Cabinet has approved a proposal to pay the public salaries in two stages.

The lower-grade staff would be paid on time while the higher grades would be paid a few days later.

He was hopeful that a final agreement with the International Monetary Fund (IMF) on the USD 2.9 billion bailout package could be reached before the end of March.

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The talks with bilateral creditors, Gunawardena said, were nearing completion. “According to foreign minister Ali Sabry who briefed the Cabinet, the agreement with India, China and Japan could be achieved soon”, Gunawardena said.

Sri Lanka is hopeful of a formal agreement with India on debt restructuring during the visit of External Affairs Minister Dr S Jaishankar, who is due to arrive here on January 19.

Since last year Sri Lanka has been grappling with unprecedented economic turmoil since its independence from Britain in 1948 and is also facing political unrest.

The economic crisis has prompted an acute shortage of essential items like food, medicine, cooking gas and other fuel, toilet paper and even matches, with Sri Lankans for months being forced to wait in lines lasting hours outside stores to buy fuel and cooking gas.

Sri Lanka's much-anticipated IMF bailout of an assistance package of USD 2.9 billion will have to wait till early this year as the country pursues talks with creditors to meet the global lender's condition for the facility.

Sri Lanka and the IMF agreed on a staff-level agreement to release USD 2.9 billion over 4 years.

As the IMF has made debt restructuring a prerequisite for the facility, the release of funds is currently on hold.

(Edited by : Soham Shetty)