In a significant policy shift, Sri Lanka’s recently elected leftist President Anura Kumara Dissanayake has decided to support a controversial IMF bailout programme initially negotiated by his predecessor, Ranil Wickremesinghe. This decision comes as the country continues to grapple with the aftermath of a severe economic crisis, including a default on its US$46 billion external debt.
Support for Continuity
Following his party’s landslide victory in the recent elections, Dissanayake addressed parliament, stating that the economy is too fragile to risk renegotiating terms with the IMF. “There’s no room to make mistakes,” he emphasised, highlighting the need for stability amidst ongoing recovery efforts.
Key IMF Loan Details
- Loan Amount: US$2.9 billion
- Duration: Four years
- Conditions: Raise taxes, remove energy subsidies, restructure over 50 state enterprises
According to IMF team leader Peter Breuer, the new government’s commitment to the programme is vital for maintaining momentum towards economic recovery and sustainable growth.
Economic Backdrop
Sri Lanka faced unparalleled economic challenges in 2022, shrinking by 7.8 per cent—its worst performance ever. Factors leading to this crisis included a shortage of foreign exchange, which hindered the import of essential goods and sparked widespread street protests, ultimately forcing former president Gotabaya Rajapaksa to resign.
Debt Restructuring
The country’s interim cabinet has already taken steps towards restructuring US$14.7 billion in foreign commercial credit, which is a crucial requirement set by the IMF. This move aims to bolster the island’s economy and restore international investor confidence.
Looking Ahead
As Sri Lanka prepares for the next tranche of funding—approximately US$333 million—pending approval from the IMF board, Dissanayake’s administration insists that maintaining the course set by the previous government is essential for recovery. The process of economic reform continues to be closely monitored, with expectations for ongoing discussions with the IMF regarding future reviews.