IMF Approves $3 Billion Bailout For Sri Lanka Amidst Economic And Social Crisis

International Monetary Fund (IMF) has approved a $3 billion bailout for Sri Lanka to aid debt restructuring and ease the economic and social crisis.

Sri Lanka secured the bailout deal after China's opposition, despite being their largest bilateral lender, was overcome this month.

Russia's war in Ukraine last year caused inflation and shortages, worsening existing mismanagement and policy mistakes, resulting in social and political upheaval.

Sri Lanka is facing a catastrophic economic and humanitarian crisis, said the IMF, due to pre-existing vulnerabilities and mis-steps, leading to significant challenges.

Following mass protests, Sri Lanka asked the IMF for help after its former president resigned and left the country in July.

This agreement aims to reorganize public debt worth $95 billion, which is equivalent to 130 per cent of the GDP. International and domestic bondholders and foreign governments and commercial lenders are owed this amount.

Sri Lanka agreed to implement fiscal, monetary, and governance reforms to tackle corruption and boost tax collection in exchange for the bailout.

The IMF's Peter Breuer, senior mission chief for Sri Lanka, spoke to reporters about the severe economic pain caused by the crisis. He warned that failure to reform would only worsen the crisis and lead to further destruction of economic value in Sri Lanka.

Sri Lanka will receive nine payments, the first being immediate and the rest averaging $333 million, throughout a four-year program.

Sri Lanka needs to meet conditions, such as creating a debt restructuring agreement with creditors, to receive payouts from the programme.

The IMF's six-month review usually entails completion of debt negotiations. However, it may take up to 18 months for Sri Lanka to come to terms with all of its creditors due to the complicated nature of its debts.

An initial agreement with bilateral lenders could prompt the release of the second payment.

Reforms aim to address corruption and inefficiency at state-owned enterprises, inflation, and foreign currency reserves. They also intend to recapitalise the banking sector, revamp the tax system, wherein half of the taxpayers pay less than 5 per cent of their income to the state.