By Uditha Jayasinghe

COLOMBO Sri Lanka's parliament on Thursday approved a new law to improve the independence of the country's central bank, the parliament's deputy speaker said, as part of reforms linked to a $2.9 billion International Monetary Fund bailout package.

The legislation was approved after multiple amendments and a third reading without a vote in the 225-member parliament, deputy speaker Ajith Rajapakse said.

Economic mismanagement coupled with the impact of the COVID-19 pandemic left Sri Lanka severely short of dollars for essential imports at the start of last year, tipping it into its worst financial crisis since independence from Britain in 1948.

The new legislation is part of a raft of reforms pledged under a $2.9 billion bailout from the IMF, which was finalised in March and has helped Sri Lanka stabilise its economy.

The new legislation will prioritise controlling inflation and introduce an inflation target, which will be agreed jointly by the central bank and the finance ministry, according to a published draft of the bill.

A separate governing board, consisting of six members and the governor, will be formed in addition to the monetary policy board to improve bank oversight and reduce conflicts of interest, it added.

(Reporting by Uditha Jayasinghe; Editing by Shivam Patel and Bernadette Baum)