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The International Monetary Fund (IMF) said Monday that its executive board has approved a bailout program of nearly $3 billion US ($4.1 billion Cdn) for Sri Lanka over four years to help save the country’s bankrupt economy.
The IMF statement said the US$333 million ($455 million Cdn) fund would be disbursed immediately and that the agreement would also open up financial support from other institutions.
“Sri Lanka has faced tremendous economic and social challenges with a severe recession amid high inflation, low reserves, unsustainable public debt, and increasing financial sector vulnerability,” said IMF director Kristalina Georgieva.
“Government institutions and frameworks require deep reforms. For Sri Lanka to overcome the crisis, the rapid and timely implementation of EFF-supported programs with strong ownership for reforms is critical.”
Sri Lanka’s presidential office said the IMF agreement would unlock up to $7 billion ($9.6 billion Cdn) in funding from the fund and other international multilateral financial institutions.
The CBC’s Salimah Shivji gives an in-depth look at the political and economic turmoil in Sri Lanka that is painful on a daily basis.
Earlier this month, the final hurdle to the agreement was cleared when China joined Sri Lanka’s other creditors in providing debt restructuring guarantees.
“From the beginning, we are committed to transparency in all discussions with financial institutions and with creditors,” president Ranil Wickremesinghe said in a statement from his office. “I thank the IMF and our international partners for their support as we look forward to getting the economy back on track for the long term through prudent fiscal management and an ambitious reform agenda.”
Wickremesinghe said he has made some tough decisions to ensure stability, debt sustainability and grow an inclusive and internationally attractive economy.
Sri Lanka quickly increased income taxes and eliminated electricity and fuel subsidies, meeting the IMF program’s prerequisites. The authorities must now discuss with Sri Lanka’s creditors how to restructure their debts.
“After obtaining specific and reliable financing guarantees from official bilateral creditors, it is now important for authorities and creditors to move quickly to restore debt sustainability consistent with IMF-supported programs,” said Georgieva.
“The authority’s commitment to achieve transparent debt resolution, consistent with program parameters and fair burden sharing among creditors in a timely manner,” he said.
Currency crisis
Sri Lanka announced last year that it was suspending foreign debt repayments amid a severe foreign currency crisis, due to a drop in tourism and export earnings due to the COVID-19 pandemic, mega projects financed by Chinese loans that did not generate income and a release of foreign currency reserves to hold the exchange rate for a longer period of time.
The currency crisis created shortages of food, fuel, medicine and cooking gas that led to street protests that forced president Gotabaya Rajapaksa to flee the country and resign.
Since Wickremesinghe took over, he has been able to reduce shortages and end hourly power outages. The Central Bank says its reserves are improving and the black market is out of control of foreign currency trading.
However, Wickremesinghe’s government is likely to face hostility from trade unions because of its plans to privatize state-owned enterprises as part of its reform agenda and public anger could increase if it fails to act against the Rajapaksa family, which people hold responsible for the economic crisis.
Wickremesinghe’s critics accuse him of protecting the Rajapaksa family, which still controls a majority of MPs in Parliament, in return for support for the presidency.
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