#The island country, which is battling its worst economic crisis since
The International Monetary Fund (IMF) on Thursday approved a loan of $2.9 billion to Sri Lanka, reported Reuters. The island country, which is battling its worst economic crisis since independence in 1948, witnessed widespread protests earlier this year that forced Gotabaya Rajapaksa to resign as President, and brought Ranil Wickremesinghe to power.
On Tuesday, President Wickremesinghe, who is also the country’s Finance Minister, presented his first budget that aimed to boost revenue and fight inflation.
Also read |IMF bailout and Sri Lanka's long, difficult road to recovery So, what happens next?
The agreement between Sri Lanka and the IMF is only preliminary, and has to be approved by the IMF management and its executive board. It will also go through only if Sri Lankan authorities carry out previously agreed measures.
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On Thursday afternoon, hours after the IMF announcement, Milinda Moragoda, the High Commissioner of Sri Lanka to India, said at the Idea Exchange programme at The Indian Express: “They have worked out the contours of a restructuring programme. We have commercial debt, bilateral and multilateral debt, and domestic debt…so how to balance this… Then there are some upfront measures to take, and then we move into the programme.”
In its statement, the IMF said “the 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”.
Also read |Last handful of fish: Crisis pushes more Sri Lankans into poverty How will the IMF funds help Sri Lanka? The funds will be disbursed over four years to help stabilise the economy and boost growth. According to the Reuters report, the package will help raise government revenue to support fiscal consolidation, introduce new pricing for fuel and electricity, hike social spending, bolster central bank autonomy and rebuild depleted foreign reserves.
“Starting from one of the lowest revenue levels in the world, the programme will implement major tax reforms. These reforms include making personal income tax more progressive and broadening the tax base Lyrics for corporate income tax and VAT,” the IMF statement said.
At Idea Exchange, High Commissioner Moragoda said: “The key here is the fact that the agreement gives confidence”, even though the quantum of loan is not huge for the situation that Sri Lanka is in. “It gives confidence for investors to come in, it gives confidence for maybe our remittances which have dropped by half to increase, and it also gives confidence for other bilaterals to come in…”
India, the High Commissioner said, had stood by Sri Lanka “right through this year, without having any idea of where this (the crisis) was going… That’s why we are so grateful. India encouraged us to go to the IMF, India was really the only country, the only partner, who stepped up without us having any kind of programme, so now we are hoping that others would come in…”