IMF Approved Bail Out Loan for Sri Lanka
The Executive Board of the International Monetary Fund (IMF) has approved a 48-month extended arrangement under the Extended Fund Facility (EFF) with an amount of SDR 2.286 billion (395 percent of quota or about INR 25500 Crores).
The IMF said that Sri Lanka has been hit hard by a catastrophic economic and humanitarian crisis. The economy is facing significant challenges stemming from pre-existing vulnerabilities and policy missteps in the lead-up to the crisis, further aggravated by a series of external shocks.
The EFF-supported program aims to restore Sri Lanka’s macroeconomic stability and debt sustainability, mitigate the economic impact on the poor and vulnerable, safeguard financial sector stability, and strengthen governance and growth potential. The Executive Board’s decision will enable an immediate disbursement equivalent to SDR 254 million (about INR 2800 Crores) and catalyze financial support from other development partners.
The President Ranil Wickremesinghe expressed his gratitude for the support of the IMF and other international partners.
The IMF Executive Board approved Sri Lanka’s program under the Extended Fund Facility (EFF) that will enable Sri Lanka to access up to INR 59500 Crores in funding. The President committed to full transparency in all discussions with financial institutions & creditors, & to achieve sustainable levels of debt through prudent fiscal management & an ambitious reform agenda.
The IMF program is critical to achieving this vision & will help to improve Sri Lanka’s standing in international capital markets, making it an attractive country for investors, talent, & tourists.
IMF Managing Director Kristalina Georgieva said that Sri Lanka should stay committed to the multi-pronged disinflation strategy to safeguard the credibility of its inflation targeting regime.
“Sri Lanka has been facing tremendous economic and social challenges with a severe recession amid high inflation, depleted reserves, an unsustainable public debt, and heightened financial sector vulnerabilities. Institutions and governance frameworks require deep reforms. For Sri Lanka to overcome the crisis, swift and timely implementation of the EFF-supported program with strong ownership for the reforms is critical.”
“Ambitious revenue-based fiscal consolidation is necessary for restoring fiscal and debt sustainability while protecting the poor and vulnerable. In this regard, the momentum of ongoing progressive tax reforms should be maintained, and social safety nets should be strengthened and better targeted to the poor. For the fiscal adjustments to be successful, sustained fiscal institutional reforms on tax administration, public financial and expenditure management, and energy pricing are critical.”
“Having obtained specific and credible financing assurances from major official bilateral creditors, it is now important for the authorities and creditors make swift progress towards restoring debt sustainability consistent with the IMF-supported program. The authorities’ commitments to transparently achieve a debt resolution, consistent with the program parameters and equitable burden sharing among creditors in a timely fashion, are welcome.”
“Sri Lanka should stay committed to the multi-pronged disinflation strategy to safeguard the credibility of its inflation targeting regime. As the market regains confidence, the authorities’ recent introduction of greater exchange rate flexibility will help to rebuild the reserve buffer.”
“Maintaining a sound and adequately capitalized banking system is important. Implementing a bank recapitalization plan and strengthening financial supervision and crisis management framework are crucial to ensure financial sector stability.”
“The ongoing efforts to tackle corruption should continue, including revamping anti-corruption legislation. A more comprehensive anti-corruption reform agenda should be guided by the ongoing IMF governance diagnostic mission that conducts an assessment of Sri Lanka’s anti-corruption and governance framework. The authorities should step up growth-enhancing structural reforms with technical assistance support from development partners,” she said in a statement.
However NPP MP Vijitha Herath said today the country would further plunge down in the debt trap. Claiming that the country would not be developed by flourishing the production economy in the country even after obtaining the IMF bailout,
He told Parliament that President Ranil Wickremesinghe claimed that Sri Lanka could obtain another loan from the Asian Development Bank (ADB) after the approval was given by the IMF.
“The government claimed that the country could come out of the economic crisis after obtaining the IMF bailout. However, the President said in Parliament today that Sri Lanka could obtain another loan from ADB after IMF approval. This proves that the IMF bailout will be a chance to obtain another loan. The country would end up in a further debt trap,” he said.
The MP said the government had to fulfill fifteen conditions of the IMF to obtain an IMF bailout which has put people in further crisis. “Government increased electricity tariff and taxes as conditions of the IMF,” he said.
He questioned why the LG polls could not be held if the economy was developed, inflation decreased and the rupee strengthened against the Dollar after the IMF bailout.
