In massive relief to cash-strapped Sri Lanka, IMF provisionally agrees to extend bailout loan
Sri Lanka has been trying to negotiate a relief deal with the financial body but couldn’t due to some technicalities.
In a massive relief to beleaguered Sri Lanka, the International Monetary Fund has agreed in principle to grant a loan of USD 2.9 billion over four years to help the country ride over the economic and political upheaval. Due to the severe shortage of foreign exchange reserves, the island nation doesn’t have the money to pay off imports, resulting in a severe paucity of essentials including petrol and diesel. The country also faced crippling protests against the administration which led to the removal of the top brass.
Sri Lanka has been trying to negotiate a relief deal with the financial body but couldn’t due to some technicalities.
“IMF staff and the Sri Lankan authorities have reached a staff-level agreement to support Sri Lanka’s economic policies with a 48-month arrangement under the Extended Fund Facility (EFF) of about 2.9 billion US dollars,” the IMF said in a statement.
The financial body added that the objective of the loan is to restore the country’s macroeconomic and financial stability.
In April, Sri Lanka defaulted on its international loans ever since it came into existence in 1948.
“Debt relief from Sri Lanka’s creditors and additional financing from multilateral partners will be required to help ensure debt sustainability and close financing gaps,” IMF said.
The financial body said before it provides the loan support, the country needs to restore its debt sustainability and make efforts to reach an agreement with private creditors.
One of the main reasons for the crisis was the unbridled propensity of successive Sri Lankan governments for launching unsustainable welfare schemes. Another problem was that Sri Lanka was completely dependent on foreign exports and had little to import. The coronavirus pandemic’s economic shock brought these vulnerabilities to the fore.
Before granting the loan, IMD demands from Sri Lanka that it raises its revenue via tax reforms, bring in the cost recovery model for fuel and electricity, restore a flexible exchange rate and forge a strong anti-corruption framework.
The country is also expected to restructure its debt worth USD 29 billion, with Japan expected to coordinate with other creditor nations, including China on this issue.
This story has not been edited by News Mania staff and is published from a syndicated feed
Photo: Internet
