World Trade

Sri Lanka to receive first installment of IMF bailout funds in 48 hours to alleviate debt crisis

The International Monetary Fund (IMF) has announced that Sri Lanka will receive the first $330 million tranche of its nearly $3 billion bailout in the next two days. The bailout has been provided to support the country, which has been struggling with economic mismanagement and the impact of the COVID-19 pandemic, leading to a severe shortage of dollars for essential imports. The IMF’s endorsement is expected to catalyze additional external support of $3.75 billion from other lenders like the World Bank and the Asian Development Bank. The programme will enable Sri Lanka to access up to $7 billion in overall funding, according to the office of the country’s president, Ranil Wickremesinghe.

Despite this, the funding will not immediately benefit millions of Sri Lankans who are struggling with the soaring costs of living, high income taxes of up to 36%, and a 66% increase in power tariffs. Sri Lanka’s economy is expected to shrink by 3% this year after contracting by 7.8% in 2022. A survey by Save the Children revealed that half of the families in Sri Lanka had to reduce the portions they fed their children.

Sri Lanka’s state minister of finance, Shehan Semasinghe, said that the IMF bailout was essential for the country, but it now had to focus on difficult reforms ahead. The IMF’s Senior Mission Chief for Sri Lanka, Peter Breuer, said that debt sustainability was a key criterion for approving any bailout for an economy. Disbursements from the bailout package would be tied to reviews every six months, and the IMF had put in place an inflation band of 12-18% for the country to achieve by the end of 2023.

To unlock the IMF bailout and put its economy back on track, Sri Lanka secured financing assurances from China, India, and all its major bilateral creditors. The country aims to announce a debt-restructuring strategy in April and step up talks with commercial creditors ahead of an IMF review of the bailout package in six months. Despite potential funds and support being thrown at Sri Lanka, it will still face a difficult road to recovery due to systemic problems in terms of economic and fiscal management, according to Moody’s Analytics senior economist, Katrina Ell.

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