An IMF mission is currently in Sri Lanka to check on the country’s progress toward meeting the terms it set for a bailout package that was agreed earlier this year. The delegation predicts that Sri Lanka’s GDP will decline by 3 percent in 2023, before recovering to expand by 1.5 percent in 2024.
According to IMF Asia and Pacific Department Director Krishna Srinivasan, in a press conference on Monday, “given the weak external environment and domestic policy tightening, aimed at restoring macroeconomic stability, the economy is expected to contract by 3 percent in 2023, before registering a modest growth of 1.5 percent in 2024,” though he stressed that the outlook critically depended on the implementation of economic reforms.
The first installment of Sri Lanka’s $3 billion bailout package was released in March, totaling $330 million.
The accord is contingent on the troubled country completing an extensive fiscal restructuring, making the public debt sustainable again, and making other necessary structural changes.
The financial authority would send representatives to cities like Colombo every so often to ensure its terms are met.
Authorities’ efforts to connect with creditors are generally regarded as positive. “The first review of the program is scheduled for September, so it’s reasonable to assume that the restructuring scheduling will be finalized by then,” Srinivasan said.
Sri Lanka requested assistance from the IMF
In March 2022, Sri Lanka requested assistance from the IMF to combat its greatest financial crisis since gaining independence from the British in 1948, and in September, the two sides struck an initial agreement for an emergency rescue package.
Colombo defaulted on its foreign debt obligations last year, putting the economy in a tailspin; but, with the approval of the rescue plan in April, China, the island’s largest creditor, became the first country to invest in Sri Lanka again.
Misguided economic policies and sky-high debt, in addition to a steep decline in foreign currency influx during the Covid-19 outbreak, have been blamed for the crisis that has enveloped the island since last year.
The IMF estimates that by 2022, Sri Lanka’s public debt will have increased to 128 percent of GDP, with an annual debt load of over $6 billion. This is roughly ten times the country’s present foreign currency reserves.
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