In a nutshell
- IMF has sanctioned a roughly $3 billion bailout for Sri Lanka to revive its economy.
- An initial sum of $333 will be dispersed within two days.
- President Wickremesinghe asserted his hopes to resuscitate the economy through careful fiscal management and ambitious reform programs.
The International Monetary Fund sanctioned on Monday a $2.9 billion bailout for Sri Lanka to revive its devastated economy. The decision would enable an immediate disbursement of $333 million, according to the IMF, and also encourage financial assistance from other partners, potentially helping the country recover from its worst financial crisis in history.
The initial sum will be delivered to Sri Lanka within two days, said the global agency on Tuesday.
Call to adopt fiscal reforms
IMF managing director Kristalina Georgieva urged Sri Lanka to adopt various fiscal reforms to overcome its crisis. She emphasized the need to expand social safety nets for the poor and tackle corruption. “Sustained fiscal institutional reforms on tax administration, public finance, expenditure management, and energy pricing are critical for the fiscal adjustments to be successful,” Georgieva said in a statement.
Sri Lankan President Ranil Wickremesinghe expressed his gratitude to the IMF nod for the bailout. “I thank the IMF and our foreign partners for their support as we aim to bring the economy back on track for the long term through careful fiscal management and our ambitious reform program’’, he said in a statement on Monday. He also voiced his hopes that the program will help improve the country’s standing in international markets, making it more appealing to investors and tourists.
“The world no longer considers Sri Lanka busted,” Wickremesinghe said in a video message issued by his office. “The lending facility assures the international community with certainty that Sri Lanka has the potential to restructure its debt and restore regular operations.”
The worst crisis in history
Sri Lanka defaulted on its international debt in April 2022, pushing the country into its worst economic crisis since independence due to an acute lack of foreign currency reserves. The foreign reserves were depleted when tourist and export profits receded during the COVID-19 epidemic, and it was forced to make large debt payments for megaprojects backed by Chinese and other international lenders that did not generate enough money. The surging inflation rates, a severe shortage of food, fuel, and medicine, and constant power outages led to widespread protests. Gotabaya Rajapaksa, the then president, who was accused of economic mismanagement, fled the country and later resigned in July.
Wickremesinghe took over as president after Rajapaksa and imposed harsh budget cutbacks and tax hikes to secure IMF aid, which led to further protests by labor unions and opposition groups. The bailout package was tentatively authorized by IMF officials in September, but the final approval was delayed until China, Sri Lanka’s largest bilateral lender, agreed to restructure its credit to Colombo.
China said this year that it would provide a two-year moratorium on its loans to Sri Lanka, but the concession fell short of IMF estimates for the country’s financial sustainability. Wickremesinghe had expected the first tranche of the IMF package to flow within a month if China agreed to restructure its debts.
Colombo will also rely on the IMF loan to defrost billions of dollars in foreign funding for projects that have been put on hold since Sri Lanka defaulted on its debts last year.
