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Sri Lanka’s economy has been in freefall since the onset of the COVID-19 pandemic. The country’s tourism industry, a major source of foreign exchange, has been decimated, and its exports have fallen. The government has also been struggling to repay its foreign debt, which now stands at over $50 billion.
Sri Lanka is in the midst of a severe economic crisis, and China has assured the country of its help. The Chinese government said on Thursday that it would provide “necessary support” to Sri Lanka as it seeks to restructure its debt and secure a bailout from the International Monetary Fund (IMF).
Sri Lanka is in a deep economic crisis
China is Sri Lanka’s largest foreign debt holder, with over $3.5 billion in loans. The Chinese government has said that it will work with Sri Lanka to restructure its debt and provide other forms of assistance, such as financial aid and technical support. “China will continue to provide the necessary support to Sri Lanka to help it tide over the current difficulties,” said a Chinese Foreign Ministry spokesperson.
The IMF is also expected to review Sri Lanka’s economy in September. “The IMF is ready to provide assistance to Sri Lanka, but the country will need to implement a number of economic reforms in order to qualify for a bailout,” said an IMF spokesperson.
China’s assurance could help Sri Lanka secure an IMF bailout
The assurance from China is a welcome development for Sri Lanka, but it is not clear how much help the country will actually receive. China has a history of providing loans to developing countries that have fallen into debt, but it has also been accused of using debt as a way to gain political influence. “We are ready to work with the Sri Lankan side to properly handle its debt issues and promote its economic and social development,” the spokesperson added.
The IMF review in September will be a critical juncture for Sri Lanka. If the IMF is satisfied with the country’s economic reforms, it could provide a bailout that would help Sri Lanka get back on its feet. However, if the IMF is not satisfied, Sri Lanka could face even more economic hardship.
- Sri Lanka’s economy shrank by 1.5% in 2022.
- The country’s inflation rate is currently at 54.6%.
- The unemployment rate is 16.9%.
- Sri Lanka’s foreign exchange reserves have fallen to $1.9 billion, which is enough to cover just about one month of imports.
What Does This Mean for Sri Lanka’s Future?
The assurance from China is a positive development for Sri Lanka, but it is not a guarantee that the country will be able to overcome its economic crisis. The IMF review in September will be a critical juncture for Sri Lanka, and the country will need to implement a number of economic reforms in order to qualify for a bailout.
The future of Sri Lanka’s economy is uncertain, but the assurance from China gives the country some hope that it will be able to overcome its current difficulties.
The IMF review in September will also be important for determining the level of support that Sri Lanka can expect from China. If the IMF is satisfied with Sri Lanka’s reforms, it is more likely that China will provide significant assistance. However, if the IMF is not satisfied, China may be less willing to help. This unfortunate economic situation of Sri Lanka puts it in a dubious situation and bleak, uncertain future.
