Sri Lanka’s IMF Saga: Once again, the country is forced to seek a bailout from the IMF – with all the costs and benefits that entails.

The ongoing economic crisis in Sri Lanka is one of the worst that the world has seen in recent times. The island nation has an unprecedented inflation rate reaching as high as 69.8 percent in September 2022.

Sri Lanka has been facing a host of macroeconomic issues, which eventually snowballed into a humanitarian disaster in early 2022. Several mismanaged political moves – such as the election-induced tax cuts in 2019 or the sudden switch to organic farming in 2021 – combined with the repeated use of external credit to mitigate Balance of Payments (BOP) crises and the COVID-induced downfall of the tourism sector combined to result in today’s massive crisis. The long lines at fuel stations across the country, civil protests ousting first the sitting prime minister and then the president, and the unavailability of necessary commodities like medicines and milk powder give a mere glimpse into the tremendous economic mess the country has run into.

Against this background, while countries such as India, Bangladesh, Japan and China have provided financial assistance and other aid to Sri Lanka in the last few months, the island nation was able to reach a preliminary agreement with the IMF for a 48-month Extended Fund Facility (EEF) of $2.9 billion. The IMF loan is intended to restore macroeconomic stability and debt sustainability, to unlock the growth potential in the economy. While safeguarding Sri Lanka’s financial stability and stepping up the structural reforms that are crucial to address corruption issues in the country, the IMF facility also aims to aid the poor and vulnerable, who are disproportionately affected by the pandemic and the ensuing economic crisis.

Flashback: In Sri Lanka, Organic Farming Went Catastrophically Wrong.

We are primarily funded by readers. Please subscribe and donate to support us!

h/t Glenn


Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.