Published On: Tue, Mar 21st, 2023

IMF Approves Loan Package Worth $2.9 Billion for Sri Lanka

The president of Sri Lanka announced on Monday that the island nation’s request for a bailout of $2.9 billion has been approved by the International Monetary Fund. This news has raised hopes that the severe economic crisis facing the island nation will begin to improve.

The board of governors of the International Monetary Fund has also confirmed that it has given its approval to the loan. This approval paves the way for the distribution of funds and launches a program that will run for four years that is designed to bolster the economy of the South Asian nation.

In a statement, President Ranil Wickremesinghe was quoted as saying, “I would like to thank the International Monetary Fund and our other foreign partners for their assistance as we implement our ambitious reform program and implement careful budgetary management to put the economy on a path that will be sustainable over the long term.”

As a result of a severe lack of foreign currency reserves, Sri Lanka was forced to default on its external debt in April 2022. At the same time, the country experienced the worst economic downturn it had seen since it gained its independence.

The country in the Indian Ocean with a population of approximately 22 million people was left without any money and was unable to finance even the importation of the most basic goods, which led to widespread social unrest.

Gotabaya Rajapaksa, the president of Sri Lanka, was forced to resign and flee the country in July as a result of widespread protests over the mismanagement of the country’s economy, severe shortages of food, gasoline, and medications, as well as astronomical price increases.

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Wickremesinghe, who took over as president after Rajapaksa’s ouster, has instituted severe cuts to government spending and raised taxes in an effort to secure assistance from the International Monetary Fund.

It took a significant amount of time before the International Monetary Fund gave its approval to the package because it was necessary in order to obtain financial guarantees from China, which is the most important bilateral lender of Sri Lanka.

The Chinese capital city of Beijing announced earlier this year that it would offer a moratorium on the company’s loans to the island nation of Sri Lanka for a period of two years; however, the IMF found that the concession did not meet its expectations regarding the island nation’s ability to responsibly manage its debt.

As China reached an agreement to renegotiate its loans, Wickremesinghe predicted that the first installment of the 2.9 billion dollar IMF package will be disbursed within a month.

Earlier on Monday, the office of Prime Minister Ranil Wickremesinghe announced that he would like to request a halt to the repayment of Sri Lanka’s external debt for ten years because the country does not have sufficient foreign reserves to pay back its loans.

Officials who were participating in the negotiations stated that the terms of the debt restructuring needed to be finalized and agreed upon by all parties before the month of June when the International Monetary Fund was anticipated to conduct an evaluation of the rescue plan.

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One of the officials, who requested anonymity, said that unless a debt restructuring plan is agreed upon by all creditors, It is unlikely that Sri Lanka will be able to access the second portion of the aid.

Colombo is also counting on the IMF arrangement to unfreeze several billion dollars worth of foreign aid for various projects that have been put on hold due to the fact that Sri Lanka did not pay back its loans a year ago.

In a bid to fulfill the prerequisites for the International Monetary Fund (IMF) bailout, the government has already hiked tax rates by a factor of two, raised energy tariffs by a factor of three, and reduced subsidy spending.

Strikes have also broken out as a result of the austerity measures, which completely paralyzed the logistics and health sectors a week ago. Wickremesinghe has stated that he was left with no other choice but to participate in an IMF program.

The worst foreign exchange crisis that Sri Lanka has experienced since it gained its independence from Britain in 1948 caused the country’s economy to contract by a record 7.8 percent last year.