Symbolic picture only. , Photo Credit: Reuters
The International Monetary Fund (IMF) approved a $3 billion-Extended Fund Facility (EFF) for Sri Lanka on March 21, potentially unlocking more loans for the debt-ridden island nation, which has been reeling from last year’s economic downturn. Struggling to survive.
“The EFF-supported program aims to restore macroeconomic stability and debt sustainability, protect financial stability, and advance structural reforms to unlock Sri Lanka’s growth potential,” the IMF said. th program with funds.
After India, China assures Sri Lanka of funding for IMF bailout package
This comes nearly a year after and six months after the country prematurely defaulted on its overseas debt amid a severe dollar shortage. Staff level agreement with IMF,
“In the 75 years of Sri Lanka’s independence, there has never been a more important period for our economic future. The IMF’s Executive Board has approved our program, enabling Sri Lanka to access $7b in funding from the IMF and IFIs. I thank the IMF and our international partners for their support, President Ranil Wickremesinghe said in a tweet on Tuesday morning.
India, Japan [as a member of the Paris Club group of creditors], and China, Sri Lanka’s top three bilateral creditors, played a key role in unlocking IMF assistance to the island by providing financial assurances to the fund. In an open letter to bilateral creditors last week, President Wickremesinghe pledged transparency in the debt restructuring process with creditors and “comparable treatment with all external creditors”.
While Sri Lanka has been desperate for IMF aid since last year’s financial crash, securing an EFF of around $3 billion, over four years, hardly guarantees a rapid economic recovery, Sri Lankan economists have warned. Sri Lanka’s total outstanding public debt is set to rise to $84 billion by December 2022, Colombo-based think tank Verite Research said in its latest debt update. In addition, Sri Lanka must repay multilateral debt totaling more than $2 billion during the first half of this year, in addition to addressing its trade deficit and currency volatility. The IMF has also repeatedly flagged corruption as a major issue in Sri Lanka and it will launch a “governance diagnosis exercise”, a first in Asia.
resistance to difficulties
In anticipation of the fund’s assistance, Sri Lanka took a number of policy measures during the past year, including a sharp increase in banking interest rates, a fluctuating rupee, increased taxes and a tripling of energy tariffs.
read this also, Aftermath of Sri Lanka’s economic collapse
Grappling with the high cost of living – and rising electricity bills now adding to their burden – labor unions across sectors recently resorted to strike action against economic hardships. While President Wickremesinghe held talks with union leaders, his government faced criticism quell protestsWith continued reports of police, and others dressed in military gear, fired tear gas and water cannon at protesters.
Asked about the IMF’s engagement with the Sri Lankan government amid concerns about room for disagreement, Mr. Peter Breuer, Senior Mission Chief of the IMF’s Sri Lanka, Asia and Pacific Department, told a media conference on Tuesday that the IMF’s scope ” limited to economic matters”, and the Fund had no authority to interfere in how the government interacted with its citizens.
On Sri Lankan officials postponing local government elections citing lack of finances, the senior official said: “We never recommended postponing local government elections in Sri Lanka, we do not recommend any country’s electoral and governance processes.” I will not interfere.”
When asked about the fund’s earlier prescription of a wealth tax in Sri Lanka, Masahiro Nozaki, the head of mission to Sri Lanka, said that this was on the cards, and that a wealth tax and inheritance tax would be introduced by 2025.