World News | IMF approves crucial $3bn bailout for bankrupt Sri Lanka

COLOMBO, March 21 (AP) — The International Monetary Fund said Monday that its executive board has approved a nearly $3 billion four-year rescue package for Sri Lanka to help save the country’s bankrupt economy.

The IMF said about $333 million would be disbursed immediately, and the approval would also open up financial support from other institutions.

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“Sri Lanka has been facing serious economic and social challenges due to high inflation, depleted reserves, unsustainable public debt and heightened financial sector vulnerabilities,” its statement quoted IMF Managing Director Kristalina Georghi Yeva’s words.

“Institutional and governance frameworks need deep reform. For Sri Lanka to overcome the crisis, it is imperative to implement EFF-backed programs quickly and in a timely manner, with a strong sense of ownership of the reforms.”

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President Ranil Wickremesinghe’s office said the approval would unlock up to $7 billion in financing from the International Monetary Fund and other international multilateral financial institutions.

The final hurdle to approval was cleared earlier this month when China, along with Sri Lanka’s other creditors, offered debt restructuring guarantees.

“From the outset, we have committed to being fully transparent in all discussions with financial institutions and creditors,” Wickremesinghe said in a statement from his office. “I am grateful for the support of the IMF and our international partners as we look to get the economy back on track in the long term through prudent fiscal management and our ambitious reform agenda.”

Wickremesinghe said he had made some difficult decisions to ensure stability, debt sustainability and the development of an inclusive and internationally attractive economy.

Sri Lanka has sharply raised income taxes and scrapped electricity and fuel subsidies, meeting prerequisites for the IMF plan. Authorities must now discuss with Sri Lanka’s creditors how to restructure their debt.

“Having received concrete and credible financing guarantees from key official bilateral creditors, the authorities and creditors must now make rapid progress to restore debt sustainability under the IMF-backed program,” Georgieva said. “

“The authorities are committed to achieving a debt resolution in a transparent manner, in line with program parameters, and in a timely and equitable manner to share the burden among creditors,” she said.

Sri Lanka suspended foreign debt repayments last year amid a severe foreign exchange crisis as the COVID-19 pandemic slammed tourism and export revenues, large projects funded by Chinese loans failed to generate revenue and released foreign exchange reserves to keep the exchange rate up for longer.

The currency crisis led to severe shortages of some food, fuel, medicine and cooking gas, leading to angry street protests that forced then-president Gotabaya Rajapaksa to flee the country and resign.

Since Wickremesinghe took over, he has managed to reduce shortages and end hours-long daily blackouts. The central bank says its reserves have increased, and the black market no longer controls foreign exchange transactions.

However, Wickremesinghe’s government is likely to face hostility from unions for his privatization of state-owned enterprises as part of his reform agenda, and public discontent could grow if he does not act against the Rajapaksa family, which is seen to be dealing with the economic crisis.

Critics of Wickremesinghe accuse him of protecting the Rajapaksa family, who still control a majority of lawmakers in parliament, in exchange for their support for his presidency. (Associated Press)

(This is an unedited and auto-generated story from a Syndicated News feed, the content body may not have been modified or edited by LatestLY staff)