The President has promised to restore economic health through “prudent fiscal management and ambitious reform programme” by IMF package.
Sri Lanka’s request for a $2.9 billion bailout was approved by the International Monetary Fund, providing cause for optimism that the country’s economic crisis may soon abate. The IMF’s board approved the loan, allowing for its disbursement and marking the beginning of a four-year programme to strengthen the economy.
Kristalina Georgieva, managing director of the IMF, issued a warning that Colombo must persist in its pursuit of tax reform and increased social safety nets for the poor, as well as rein in the corruption that has been largely blamed for the crisis.
On Monday, President Ranil Wickremesinghe of Sri Lanka issued a statement in which he thanked the International Monetary Fund and other international partners for their help in getting the country’s economy back on track for the long term through prudent fiscal management and an ambitious reform agenda.
Due to a severe lack of foreign currency reserves, Sri Lanka defaulted on its international debt in April 2022, sending the country into its worst economic depression since independence. Almost 22 million people in the country in the Indian Ocean no longer have the money to import food or medicine. In July, President Gotabaya Rajapaksa resigned and fled the nation after widespread protests over economic mismanagement, acute shortages of food, gasoline, and medicines, and runaway inflation.
Siri Lanka imposes budget cuts and tax increases to win IMF support
Wickremesinghe, who succeeded Rajapaksa as president, enacted severe budget cuts and tax increases in an effort to win the support of the International Monetary Fund. Although the rescue had been tentatively approved by IMF staff in September, it was not given the ultimate go-ahead until China, Sri Lanka’s largest bilateral lender, agreed to restructure its debts to Colombo.
This year, Beijing announced it would provide Sri Lanka a two-year moratorium on its loans, but the concession was not enough to meet IMF expectations for the sustainability of the island’s debt. As China agreed to restructure its loans, Wickremesinghe predicted that the first installment of the IMF package would be released within a month.
Moreover, Colombo expects the IMF agreement to unfreeze billions of dollars in foreign financing for projects that have been stalled since Sri Lanka defaulted on its loans last year.
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