Sri Lanka has received a $2.286 billion bailout from the International Monetary Fund (IMF) after India, the United States, and Japan convinced China to restructure its $7 billion loan to Sri Lanka. The government under President Ranil Wickremesinghe announced that the IMF bailout means the country is no longer considered bankrupt.
Earlier this year, Sri Lanka experienced mass protests due to dwindling foreign exchange reserves and shortages of essential commodities. As a result, the country declared a unilateral moratorium on selected external debt service payments until the debt was restructured. An IMF-supported economic reform program was followed to restore macroeconomic stability and debt sustainability.
The four-year program, supported by the Extended Fund Facility, is expected to provide policy space to drive Sri Lanka’s economy out of unprecedented challenges and instil confidence among stakeholders. However, Moody’s analysts have warned that the IMF bailout is not a cure-all.
The government must adhere to the IMF’s guidelines, which could be challenging, given former president Gotabaya Rajapaksa’s poor leadership, defaults on international payments, and outlawing chemical fertilizers and printing money. Critics believe these actions further harmed the nation’s economy. Rajapaksa was deposed after one and a half years in power.
India has committed to providing $4 billion in financial assistance in 2022. The US Ambassador to Sri Lanka said the approval of the IMF package is welcomed, but lasting reforms addressing good governance and transparency are necessary for all Sri Lankan citizens to prosper.
The delay in securing the IMF bailout was mainly due to China’s silence regarding debt restructuring. The IMF emphasized the need for anti-corruption reform, successful projects, political stability, and up-to-date governance reforms. To secure the fund, the Central Bank of Sri Lanka had to increase policy interest rates beginning in March.
Following the IMF approval, the opposition leader tweeted that governance reform, listening to the people’s voice, and having a global perspective is key to success. An economist and opposition member thanked President Wickremesinghe for his commitment, acknowledging that governance reform is crucial.
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