Sri Lanka secures its 17th IMF bailout package of USD 3 billion

The bailout package for Sri Lanka under IMF’s Extended Fund Facility (EFF) has been in the pipeline after the country defaulted on its foreign debt last April

March 21, 2023 by Peoples Dispatch
Sri Lanka IMF bailout
(Photo: TRT World)

Sri Lanka has secured a bailout package of around US$ 3 billion from the International Monetary Fund (IMF). The loan under IMF’s Extended Fund Facility (EFF) had been in the pipeline after Sri Lanka defaulted on its foreign debt of US$ 51 billion last April.

This rescue package would be Sri Lanka’s 17th program with the IMF and comes six months after a staff-level agreement was signed. China, India, and Japan—Sri Lanka’s top three bilateral creditors—reportedly played a critical role in ensuring that the bailout gets approval. The immediate disbursal of US$ 333 million as part of the loan has been approved by the IMF.

The office of Sri Lankan President Ranil Wickremesinghe said that up to US$ 7 billion in loans can be secured—from the IMF as well as other international financial institutions—with the approval of the package.

Progressive sections in the country have long warned that the IMF package will not solve the structural issues of Sri Lanka’s economy. Writing in March, analysts Devaka Gunawardena, Niyanthini Kadirgamar, and Ahilan Kadirgamar predicted that “Compared to its sixteen previous IMF agreements, Sri Lanka’s adjustment this time around will cause an entirely different scale of suffering. The country is now at the whims of its creditors, while the elites counsel “bitter medicine” to people who are nearing an economic cliff. After a contraction during 2022 on the order of a tenth of its GDP, the economy could shrink on a similar scale in 2023. This so-called solution will have dire political consequences.”

Meanwhile, the IMF-mandated austerity measures implemented by the government, including increased taxes and privatization of state assets, have invoked a series of protests across the country. On March 15, thousands of workers from the public sector—including railways, hospitals, schools, and ports—observed a complete nationwide shutdown on a strike call announced by more than 40 trade unions. 

The Wickremesinghe-led government has been justifying the increase in taxes as necessary to strengthen state revenues, and the increase in electricity charges as a means to cover the cost of production. On March 8, Wickremesinghe told the parliament that such difficult reforms were needed to remain on course for the IMF bailout.

For over a year, Sri Lanka has been reeling under a severe economic crisis, marked by severe shortages of essentials like food, fuel, and medicines.  The working class has faced the maximum brunt of high inflation. However, workers are continuing their resistance against the government and demanding the rollback of the new income tax policy and an end to state persecution.