Sri Lanka had started negotiations with the international lender in 2022 after it was hit by the severe economic crisis….reports Asian Lite News
Central Bank of Sri Lanka’s Governor, Nandalal Weerasinghe said the island nation could finalise negotiations with both bilateral and commercial creditors in advance of the first review of the International Monetary Fund (IMF bailout, which is scheduled to take place in six months.
Amid the ongoing worst-ever economic crisis since independence in 1948, Sri Lanka last month had finally secured the $2.9 billion bailout from the IMF, which came as a lifeline for the country that has billions of dollars in loans.
Addressing a meeting late Wednesday night, Weerasinghe said after nearly a year of discussion, Sri Lankan authorities secured a the bailout on the condition that they will stay on course with reforms over the next four years, reports Xinhua news agency.
Sri Lanka has received the first tranche of about $330 million from the IMF, and this has not only eased liquidity conditions in the domestic foreign currency market, but also restored confidence among investors and other creditors, he said.
However, if the country fails to remember the reason for obtaining the IMF Extended Fund Facility and reverts to the actions that lead to fiscal imbalances, it will not have another opportunity to correct its mistakes, the Governor added.
Sri Lanka had started negotiations with the international lender in 2022 after it was hit by the severe economic crisis.
The Covid-19 pandemic, rising energy prices, populist tax cuts and inflation of more than 50 per cent has battered Sri Lanka.
A shortage of medicines, fuel and other essentials also pushed the cost of living to record highs, triggering violent nationwide protests which overthrew the Gotabaya Rajapaksa government in 2022.
As a result the country defaulted on its debts with international lenders last May for the first time in its history.
Sri Lanka’s economy is estimated to contract again in 2023 before it begins a gradual recovery in 2024, as the country navigates an unprecedented economic crisis, according to Asian Development Bank (ADB).
The crisis-hit economy contracted by 7.8 per cent in 2022 and is forecast to contract by 3 per cent in 2023 as it continues to grapple with the challenge of debt restructuring and balance of payments difficulties. Reform measures, such as the reversal of the tax it cut in 2019, and the recent approval of the International Monetary Fund’s (IMF) loan arrangement will support the country’s efforts to stabilize its economy, said the ADB.
Recently, the IMF approved a 48-month arrangement under the Extended Fund Facility of about USD 3 billion to support Sri Lanka’s economic policies and reforms.
Sri Lanka’s recovery from the crisis now hinges on timely progress on debt relief and implementation of economic reforms.