Mumbai, India - Sri Lanka has secured a $ 2.9 billion loan from the International Monetary Fund, raising hopes the funding will mark the beginning of economic revival in a country confronting its worst crisis in decades.
The IMF approval Monday came about a year after the island nation of 22 million was plunged into turmoil as it grappled with crippling shortages of food, fuel and medicine, triggering massive street protests.
Although the situation has improved marginally, the country still faces an uphill task in repairing its broken economy. The snaking lines for fuel have vanished, the hours-long daily power cuts have ended and severe shortages of cooking gas have eased. But high inflation is still hurting millions of people and the government suspended repayment of its foreign debt as its foreign exchange reserves dipped to record lows.
The approval of the IMF rescue package took longer than initially expected as Sri Lanka negotiated with its biggest creditor, China, to support the restructuring of its debt.
"Sri Lanka is no longer deemed bankrupt by the world,' Sri Lankan President Ranil Wickremesinghe said in a video statement. 'The loan facility serves as an assurance from the international community that Sri Lanka has the capacity to restructure its debt and resume normal transactions.'
The IMF will immediately disburse $333 million to Sri Lanka, with more funds to follow in the coming months. The president's office said in a statement that the agreement will enable the country to access up to $7 billion altogether from the IMF and other international financial institutions.
"The amount of the loan may not be large, but its significance lies in the IMF saying that it is OK to lend to Sri Lanka," says Paikiasothy Saravanamuttu, Executive Director at the Center for Policy Alternatives in Colombo. "That opens the doors for other international lenders to come forward."
However, the road to recovery will not be easy -- the IMF loan has been approved with conditions that will involve tightening public spending and rolling back some policies that led to the current crisis.
A worker fills petrol in an motorbike at a fuel station on March 21, 2023.
The government has already raised income taxes and slashed electricity and fuel subsidies, fulfilling some of those conditions. But there are more stringent reforms that will have to be implemented in the months ahead.
Analysts say that the government could face hostility from trade unions over plans to privatize several loss-making state-owned companies as part of the reform agenda. Earlier this month, the government's decision to postpone local elections because of lack of funds triggered angry protests.
The government also agreed to enact tough anti-corruption laws as it negotiated with the IMF, which has said that Colombo must rein in the corruption that has been partly blamed for the crisis.
The IMF said Tuesday it is also assessing governance in Sri Lanka, making it the first Asian country facing scrutiny for corruption as part of a bailout program.
'We emphasize the importance of anti-corruption and governance reforms as a central pillar of the program,' Peter Breuer, the IMF's senior mission chief for Sri Lanka, told reporters Tuesday. 'They are indispensable to ensure the hard-won gains from the reforms benefit the Sri Lankan people.'
There are some hopeful signs that the economy is now on the right path. The crucial tourism industry that was devastated by the COVID-19 pandemic is recovering as visitors begin to return to the island country's pristine tropical beaches.
A street hawker waits for customers at the Galle Face Beach in Colombo on March 20, 2023.
"Last year, I lost my job, and I was unemployed for almost nine months. It was a very bad period for me," says tour guide Hasitha Vishwa, who is based in Kalutara, famed for its beaches. "But since November, I have again found work as tourists from countries like India, Russia and Britain return. So, things are a little better," he said, expressing hope that the IMF loan is a signal that the worst is over the country.
The economy of a country that just years ago was ranked as a middle- income country unraveled after being hit both by the COVID-19 pandemic and economic mismanagement blamed on the previous government led by former President Gotabaya Rajapaksa. He resigned last July after protestors stormed his residence.
The protests ended after Wickremesinghe took a tough approach to the demonstrations but there is simmering anger in the country over the difficult times that lie ahead.
"The protests now are over the higher taxes and electricity tariffs that ordinary people have to pay when they are already facing difficulties. There will be resentment over the conditions that the IMF loan involves," according to analyst Saravanamuttu.
The situation in Sri Lanka is still bleak, according to aid organizations. Half of the families in the country have been forced to reduce portions they feed their children, according to a survey by Save the Children released this month.