1. Skip to content
  2. Skip to main menu
  3. Skip to more DW sites
PoliticsSri Lanka

Sri Lanka set for IMF bailout amid crisis

September 1, 2022

The International Monetary Fund says a first agreement has been reached on a $2.9 billion loan to the bankrupt country. Sri Lanka is facing its worst economic crisis in more than 70 years.

https://p.dw.com/p/4GI9b
Protesters in Colombo
Sri Lanka's economic crisis has led to protests and political turmoilImage: Eranga Jayawardena/AP Photo/picture alliance

Sri Lanka has reached a preliminary agreement on a bailout worth around $2.9 billion (€2.9 billion) over four years, the International Monetary Fund (IMF) said on Thursday.

"The objectives of Sri Lanka's new Fund-supported programme are to restore macroeconomic stability and debt sustainability," the international lender said in a statement.

The staff-level agreement comes as Sri Lanka faces its worst economic crisis since attaining independence from Britain in 1948, with residents facing acute shortages of basic goods and spiraling inflation.

"The staff level agreement is only the beginning of a long road for Sri Lanka," senior IMF official Peter Breuer told reporters in the commercial capital, Colombo.

"Authorities have already begun the reform process and it must continue with determination," he added.

What does the agreement entail?

The deal must now be approved by IMF management and its executive board before the loan is finally granted.

Sri Lankan authorities will also be required to carry out some previously agreed measures. The IMF said the country had agreed to increase revenue, remove subsidies, ensure a flexible exchange rate and rebuild its foreign reserves.

The IMF also requires financing assurances from Sri Lanka's official creditors, besides ensuring that efforts are made to reach a collaborative agreement with private creditors.

"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," the statement said.

The country needs to restructure nearly $30 billion of debt.

What does the current financial crisis mean for Sri Lankans?

Since late last year, the 22 million residents of Sri Lanka have been facing shortages of food, fuel and medicine, along with long power blackouts and galloping inflation, which has now reached almost 65% year-on-year.

The crisis triggered street protests that led to the downfall of then-President Gotabaya Rajapaksa in July.

The country's current extreme economic woes began when its foreign exchange ran too low for it to buy goods from overseas. The loss of foreign exchange was largely a result of the coronavirus pandemic, which both gravely damaged the island's tourism industry and caused foreign remittances from Sri Lankans working abroad to dry up.

Rajapaksa's government was criticized for introducing unsustainable tax cuts that increased government debt and aggravated the crisis. 

 tj/wd (AFP, Reuters)