Sri Lanka: $3bn new IMF bailout for struggling economy

Sri Lanka economy

Sri Lanka has secured a$ 3bn(£2.4 bn) bailout from the International Monetary Fund( IMF) as it faces its worst profitable extremity since independence.

The deal has been nearly a time in the timber and a lifeline for the country that has billions of bones in loans.

Foreign minister Ali Sabry told the BBC the government will raise finances by restructuring state- possessed enterprises and privatising the public airline. still, judges advised Sri Lanka still faces a tough road ahead.

The country’s frugality has been hit hard by the epidemic, rising energy prices, populist duty cuts and affectation of further than 50.

A deficit of drugs, energy and other rudiments also helped to push the cost of living to record highs, driving civil demurrers which overthrew the ruling government in 2022. As a result the country defaulted on its debts with transnational lenders last May for the first time in its history. ” We’ve lived beyond our means.

Whether we like it or not, these delicate measures which may be veritably unpopular need to be taken,” Mr Sabry said in an interview before the backing was blazoned. ” Luckily, utmost( people) other than politically- motivated unions have understood that.

I know they aren’t happy, but they also understand we’ve no choice,” Mr Sabry added. before this time the country introduced income levies for professionals, ranging from12.5 to further than 36. It also raised other levies to pay for critical purchases, including energy and food.

The nearly $3 billion loan from the DC-based bank comes a year after Sri Lanka defaulted on its foreign debt amid a severe dollar crisis and six months after the government reached a staff-level deal.

In an earlier tweet, Wickremesinghe said Sri Lanka’s economic future was “at a critical juncture like never before”. He noted that the IMF package allowed Sri Lanka to “access up to $7 billion from the IMF and IFIs [International Financial Institutions]” while thanks to Sri Lanka’s partners.

India, Japan [as members of the Paris Club creditor group] and China, as Sri Lanka’s three largest bilateral creditors, played a key role in the IMF’s assistance to the island through IMF financing guarantees.

In an open letter to bilateral creditors last week, President Wickremesinghe promised that Sri Lankan would be transparent in its debt restructuring process and ensure that “all external creditors are treated equally”.

This is in stark discrepancy from the big duty cuts former Sri Lanka chairman Gotabaya Rajapaksa introduced in 2019, which lost the government income of further than$1.4 bn(£1.14 bn) a time.

Andrew Wood, critic at the S&P Global Conditions agency, said” Sri Lanka still faces a long road toward connection of its government balance distance, harmonious profitable growth, and external stability.

” We anticipate the frugality to contract again in 2023, albeit at a more modest pace, before returning to growth in 2024.” before this month, the IMF said Sri Lanka had secured backing assurances from all its major creditors, including China and India, which paved the way for the bailout.

Mr Sabry said it was” a little unseasonable” to bandy if China- Sri Lanka’s biggest bilateral lender- would consider writing- off some of the country’s debts. ” We’ve the will to pay, but we do not have the capacity to pay.

What we’re now trying to do is get that capacity back,” he said. ” That is going to be a veritably delicate and serious discussion.” The Sri Lankan government had originally hoped to agree a new payment plan with China and India by the end of 2022.

Beijing’s lending to Sri Lanka stands at around$ 7bn(£5.71 bn) while India is owed around$ 1bn(£ 820m).