The International Monetary Fund (IMF) approved Sri Lanka’s request for a $2.9 billion bailout, providing a glimmer of hope for the South Asian nation’s economy, which has been mired in crisis.
President Ranil Wickremesinghe expressed his gratitude to the IMF and international partners for their support, adding that the country would look to get the economy back on track for the long term through prudent fiscal management and an ambitious reform agenda.
“I express my gratitude to the IMF and our international partners for their support as we look to get the economy back on track for the long term through prudent fiscal management and our ambitious reform agenda,” Wickremesinghe said in a statement.
The IMF’s board also confirmed the loan while notifying that the initial tranche of $330 million will be provided in two days, which will kick-start a four-year program designed to prop up Sri Lanka’s finances.
The approval of the package by the IMF’s executive board on Monday is expected to unlock additional external support totaling $3.75 billion from lenders such as the World Bank and the Asian Development Bank.
Bailout Conditions
The bailout, however, came with conditions, including a requirement for a debt restructuring plan that must be agreed upon by all creditors by June.
“Sri Lanka will not be able to draw down the second tranche unless a debt restructuring plan is agreed with all creditors,” said one of the officials, who asked not to be identified.
The government has already doubled taxes, tripled energy tariffs, and cut subsidies in an attempt to meet the preconditions of the bailout.
Wickremesinghe’s office also called for a 10-year moratorium on Sri Lanka’s foreign debt, stating that the country has insufficient foreign reserves to service its loans.
The country defaulted on its foreign debt in April 2022 as its economy shrank by a record 7.8%, triggering a major economic downturn, acute shortages of essential goods, and widespread protests. President Gotabaya Rajapaksa fled the country in July, and was replaced by RanilWickremesinghe, who introduced spending cuts and tax hikes to secure IMF assistance. There was a delay in approving the package as China, Sri Lanka’s largest bilateral lender, needed to provide financial assurances. Although Beijing agreed to restructure its loans, the concession fell short of IMF expectations for the sustainability of Sri Lanka’s debt.