Sri Lanka’s president has said that the International Monetary Fund (IMF) has approved its request for a $2.9bn bailout and the country’s presidency said the programme will enable it to access up to $7bn in overall funding.

The IMF’s board confirmed it has signed off on the loan, which clears the way for the release of funds and kicks off a four-year programme designed to shore up the country’s economy.

The decision will allow an immediate disbursement of about $333m, the IMF said, and will spur financial support from other partners, potentially helping Sri Lanka emerge from its worst financial crisis in decades.

But IMF Managing Director Kristalina Georgieva warned that Colombo must continue pursuing tax reform and greater social safety nets for the poor – and rein in the corruption that has been partly blamed for the crisis.

“I express my gratitude to the IMF and our international partners for their support as we look to get the economy back on track for the long term through prudent fiscal management and our ambitious reform agenda,” Sri Lanka’s President Ranil Wickremesinghe said in a statement on Monday.

The country defaulted on its foreign debt in April 2022 as it plunged into its worst economic downturn since independence because of a major shortage of foreign currency reserves.

The Indian Ocean nation of around 22 million people ran out of cash to finance even the most essential imports, leading to widespread social unrest.

Mass protests over economic mismanagement, acute shortages of food, fuel and medicines, and runaway inflation forced President Gotabaya Rajapaksa to flee the country and resign in July.

Rajapaksa was replaced by President Wickremesinghe, who has implemented tough spending cuts and tax hikes in an attempt to secure IMF assistance.

IMF staff had provisionally approved the bailout in September, but the final green light was held up until China, the island’s biggest bilateral lender, agreed to restructure its loans to Colombo.