The IMF announced Tuesday (18) it was lending more than $167 million to Sri Lanka after delaying the loan for months, but warned the island must raise interest rates to reign in credit.
The government of Maithripala Sirisena, which came to power in February 2015, secured the bailout in June last year following a balance of payments crisis.
The third installment of the $1.5 billion loan -- a sum of $167.2 million -- had been withheld because Sri Lanka failed to meet its bailout conditions.
In a statement the IMF said Sri Lanka had undertaken "meaningful corrective actions" to achieve its agreed targets despite failing to deliver on tax reforms or shore up foreign reserves.
In releasing the third tranche of the bailout, the IMF advised Sri Lanka consider further interest rate hikes to tackle credit expansion and combat inflation.
"While monetary policy was tightened in March, further tightening is desirable until clear signs emerge that inflation pressures and credit expansion have subsided," the IMF said.
Sri Lanka's central bank raised its benchmark lending rate by a quarter percentage point to 8.75 per cent in March, as year-on-year inflation increased sharply in February.
The government had planned to sell off stakes in its ports and its loss-making national airline to raise revenue, but stalled amid protests from the opposition and a lack of investor interest.
Official reserves -- resting at $6 billion at the close of 2016 -- improved to $6.9 billion at the end of June, up from $6.7 billion a month earlier.
Michael Gove
Jeremy Hunt