COLOMBO: Monday, the International Monetary Fund announced that its executive board had approved a four-year, nearly $3 billion bailout program for Sri Lanka to assist in reviving the ailing economy.
The IMF stated that approximately $333 million will be distributed immediately and that the approval will also open the door to financial support from other institutions.
IMF Managing Director Kristalina Georgieva was quoted in the statement as saying, "Sri Lanka has been facing tremendous economic and social challenges with a severe recession amid high inflation, depleted reserves, an unsustainable public debt, and heightened financial sector vulnerabilities."
“Deep reforms are needed for institutions and governance frameworks. For Sri Lanka to conquer the emergency, quick and convenient execution of the EFF-upheld program serious areas of strength for with for the changes is basic."
According to the office of President Ranil Wickremesinghe, the approval will enable financing of up to $7 billion from the IMF and other international multilateral financial institutions.
When China provided debt restructuring assurances alongside Sri Lanka's other creditors earlier this month, the final obstacle to approval was cleared.
"All along, we resolved to full straightforwardness in the entirety of our conversations with monetary establishments and with our loan bosses," Wickremesinghe said in an explanation from his office. " As we attempt to get the economy back on track for the long term through prudent fiscal management and our ambitious reform agenda, I would like to express my gratitude to the International Monetary Fund and our international partners for their assistance.
Wickremesinghe stated that he has made difficult choices to maintain stability, sustain debt, and develop an inclusive economy that is appealing to international investors.
Sri Lanka met the requirements of the IMF program by drastically increasing income taxes and eliminating subsidies for electricity and fuel. Now, authorities must discuss debt restructuring with Sri Lanka's creditors.
“It is now important for the authorities and creditors to make rapid progress towards restoring debt sustainability consistent with the IMF-supported program," Georgieva stated. "Having obtained specific and credible financing assurances from major official bilateral creditors."
She stated, "We welcome the authorities' commitments to transparently achieve a debt resolution in accordance with the program parameters and equitable burden sharing among creditors in a timely manner."
Due to a decline in tourism and export revenue as a result of the COVID-19 pandemic, megaprojects funded by Chinese loans that did not generate income, and the release of foreign currency reserves to hold the exchange rates for a longer period of time, Sri Lanka suspended repayment of its foreign debt the previous year.
The currency crisis resulted in severe shortages of fuel, medicine, cooking gas, some foods, and fuel, which caused enraged street protests that forced the country's then-President Gotabaya Rajapaksa to leave and resign.
Wickremesinghe has been able to reduce shortages and end daily power outages that lasted for hours. The Central Bank claims that its reserves have increased and that the trade in foreign currencies is no longer controlled by the black market.
However, Wickremesinghe's government is likely to face opposition from trade unions due to his plans to privatize state enterprises as part of his reform agenda. If he does not take action against the Rajapaksa family, whom many people believe to be the cause of the economic crisis, public resentment may grow.
Wickremesinghe's critics say that in exchange for their support for his presidency, he protected the Rajapaksa family, which still controls the majority of lawmakers in Parliament.