Sri Lanka has received its first tranche of USD 330 million as part of the USD 3 billion bailout program approved by the International Monetary Fund (IMF) to help the country overcome its economic crisis. The move is being hailed as a “historic milestone” by Colombo, which has been struggling with a catastrophic economic and humanitarian crisis due to years of mismanagement and the COVID-19 pandemic.
According to Sri Lankan President Ranil Wickremesinghe, the IMF bailout will pave the way for better “fiscal discipline” and “improved governance” in the country. The Extended Fund Facility (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 programme will allow Sri Lanka to access financing of up to USD 7 billion from the IMF, International Financial Institutions (IFIs), and multilateral organizations. The cash-strapped country has been hit hard by a severe economic crisis triggered by forex shortages, which led to its first-ever debt default in April last year.
The IMF’s Executive Board approved the 48-month extended arrangement under the EFF on Monday, which includes an amount of SDR 2.286 billion (about USD 3 billion). Special Drawing Rights (SDR) are supplementary foreign exchange reserve assets defined and maintained by the IMF.
To unlock the program, Sri Lanka has introduced painful economic measures such as tax hikes and utility rate hikes. However, trade unions and opposition groups have organized protests against such measures.
The IMF bailout program is expected to restore Sri Lanka’s macroeconomic stability and debt sustainability, which has been further aggravated by the COVID-19 pandemic. The program’s primary focus is to ensure that the economic crisis does not have an adverse impact on the poor and vulnerable sections of society while safeguarding financial sector stability.
In conclusion, the IMF bailout program is a much-needed relief for Sri Lanka, which has been grappling with an economic crisis for quite some time. The country’s ability to access financing of up to USD 7 billion from the IMF and other multilateral organizations will provide the necessary support to restore its macroeconomic stability and debt sustainability.
However, it remains to be seen how successful the program will be in mitigating the economic impact on the poor and vulnerable sections of society while ensuring improved governance and growth potential