IMF bailout of $2.9 billion for Sri Lanka’s economy

The International Monetary Fund (IMF) has bailed out Sri Lanka, which is undergoing its worst economic crisis since obtaining independence.
Image: Reuters

The International Monetary Fund (IMF) has bailed out Sri Lanka, which is undergoing its worst economic crisis since obtaining independence.

The accord, which has been in the works for over a year, is a vital lifeline for the country. It is already billions of dollars in debt.

Foreign Minister Ali Sabry said that the government intends to raise revenue through overhauling state-owned companies, selling the national airline.

Yet, analysts stress that Sri Lanka still has a difficult road ahead.

Due to the pandemic, rising oil prices, populist tax cuts, and inflation in excess of 50 percent, the economy has suffered a severe setback.

The growing cost of living was mostly driven by a scarcity of medical supplies, gasoline, and other needs. This led to major protests in 2022 that finally led to the overthrow of the government.

In May, the government defaulted for the first time on its obligations owing to foreign lenders.

We have spent over our means. In an interview before the money was publicized, Mr. Sabry declared, “whether we like it or not, we must take these unpleasant acts.” This statement may be exceedingly problematic.

With the exception of politically motivated unions, the majority of [people] have thankfully realized this. I’m aware they don’t like it, but they appreciate we don’t have many options “Mr. Sabry stated.

“Long path to consolidation of financial sheets”

Earlier this year, new income tax rates of between 12.5% and 36.6% were adopted for the nation’s professionals.

In order to pay basics such as gasoline and food, additional taxes were raised.

In instance, former Sri Lankan president Gotabaya Rajapaksa imposed considerable tax cuts in 2019, costing the country around $1.4 billion (£1.14 billion) annually.

Andrew Wood, an S&P Global Ratings analyst, observed, “Sri Lanka has a long path to consolidation of the government’s financial sheet, sustained economic growth, and external stability.

Our prognosis for the next year is for a milder economic downturn, followed by a resumption of expansion in 2024.

The International Monetary Fund said earlier this month that Sri Lanka has received finance guarantees from all of its major creditors, including China and India, paving the path for the rescue.

According to Mr. Sabry, it is “a little premature” to discuss if China, Sri Lanka’s biggest bilateral lender, may contemplate forgiving any of the nation’s commitments.

We want to pay, but are now unable to do so. He said that our present objective is to reestablish that capacity.

This is going to be some intense discourse, so fasten your seatbelts.

By 2022, the Sri Lankan government had hoped to achieve a new payment agreement with China and India.

China lent Sri Lanka almost $7 billion whereas India is owed over $1 billion

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