By Uditha Jayasinghe
COLOMBO (Reuters) -The International Monetary Fund (IMF) approved the third review of Sri Lanka's $2.9 billion bailout on Saturday but warned that the South Asian economy remains vulnerable.
In a statement, the global lender said it would release about $333 million, bringing total funding to around $1.3 billion, to the crisis-hit nation. It said signs of an economic recovery were emerging.
The country still needs to complete a $12.5 billion bondholder debt restructuring and a $10 billion debt rework with bilateral creditors including Japan, China and India to take the programme forward, the IMF said.
The IMF bailout secured in March last year helped stabilise economic conditions after cash-strapped Sri Lanka plunged into its worst financial crisis in more than seven decades in 2022.
Staying in line with tax revenue requirements and continuing reforms of state-owned enterprises will remain crucial to hitting a primary surplus target of 2.3% of gross domestic product next year, said IMF Senior Mission Chief Peter Breuer, wrapping up a delegation visit to the capital Colombo.
"The authorities have committed to staying within the guardrails of the programme," Breuer said. "We have agreed on a package for them to achieve their priorities and objectives and as soon as that is submitted to parliament it will then be possible to go ahead with the fourth review process."
An interim budget is expected to be presented to parliament in December, Sri Lanka's new president, Anura Kumara Dissanayake, said this week. He hopes to complete the debt restructuring by the end of December.
During Sri Lanka's crisis, a severe dollar shortage sent inflation soaring to 70%, its currency to record lows and its economy contracting by 7.3% during the worst of the fallout and by 2.3% last year. In recent months, the rupee has risen 11.3% and inflation disappeared, with prices falling 0.8% last month.
The island nation's economy is expected to grow 4.4% this year, the first increase in three years, according to the World Bank.