The International Monetary Fund (IMF) on June 30 said it has concluded “constructive and productive” discussions with Sri Lankan authorities, but warned that the crisis-ridden island nation needs to do more on debt restructuring and step up structural reforms to address corruption vulnerabilities before a bailout package is finalised.

Sri Lanka is going through the worst economic crisis since its independence from Britain in 1948 and needs to obtain at least $4 billion to tide over the acute shortage in foreign exchange reserves.

“The IMF team had constructive and productive discussions with the authorities on economic policies and reforms to be supported by an Extended Fund Facility arrangement,” the IMF said in a statement.

“The discussions will continue virtually with a view to reaching a staff-level agreement on the Extended Fund Facility arrangement in the near term,” it added.

However, due to the unsustainability of public debt, there is the requirement for “adequate financing assurances from Sri Lanka’s creditors that debt sustainability will be restored,” it warned.

The IMF team visited Colombo on June 20 to continue discussions on an economic programme that could be supported by an IMF lending arrangement, building on the progress made during the May 9-24 virtual mission.

The objectives of the new IMF-supported programme would be to restore macroeconomic stability and debt sustainability, while protecting the poor and vulnerable, safeguarding financial stability, and stepping up structural reforms to address corruption vulnerabilities and unlocking Sri Lanka’s growth potential, it said. The IMF also warned that high fiscal deficit had to be reduced, as well as taming rising inflation.

Since revenue was weak, far-reaching tax reforms were urgently needed to achieve these objectives, it added. On Monday, the Sri Lankan government announced that only essential services will operate from midnight till July 10 and all other operations will be temporarily suspended as the island nation of 22 million faces an acute fuel shortage.

The nearly-bankrupt country, with an acute foreign currency crisis that resulted in foreign debt default, had announced in April that it is suspending nearly $7 billion foreign debt repayment due for this year out of about $25 billion due through 2026. Sri Lanka’s total foreign debt stands at $51 billion.

Since June 24, no fuel tankers with supplies have arrived in the island nation while the state-run fuel retailer Ceylon Petroleum Corporation says no new orders have been placed.

Meanwhile, the government’s statistics office said on Tuesday that the economic growth in the first quarter of this year is projected to see a minus 1.6% growth due to the economic crisis. A release said that fuel shortages had impacted all sectors with reduced production contributing to the negative growth.

The Sri Lankan economy has virtually come to a grinding halt after it has run out of foreign exchange reserves to import fuel. Sri Lankans continue to languish in long fuel and cooking gas queues as the government is unable to find dollars to fund imports.

So far, there have been an estimated thirteen deaths in fuel queues due to exhaustion, physical ailments or accidents. Irate citizens want President Gotabaya Rajapaksa and his government to resign immediately for their inability to tackle the fuel shortages.