IMF bails out sinking Sri Lanka with corruption checks condition

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By Manish Anand

New Delhi, September 1: Making it the 17th occasion, the International Monetary Fund is close to inking the deal with the Sri Lankan government for $2.9 billion bailout package, for which staff level agreement has been reached.

Peter Breuer and Masahiro Nozaki led the negotiations on behalf of the IMF in Colombo from August 24 to September 1, 2022.

“The Sri Lankan authorities and the IMF team have reached staff-level agreement to support the authorities’ economic adjustment and reform policies with a new 48-month Extended Fund Facility (EFF) with a requested access of about SDR 2.2 billion (equivalent to US$2.9 billion),” said the IMF in a statement posted on its website.

Sri Lanka has been negotiating a $4 billion package with the IMF while its economy sunk to the level of bankruptcy.

India has extended almost $3.8 billion of the credit line to stabilize the economy of the island nation.

Since 1965, this will be the 17th occasion that the IMF will be stepping in to bail out Sri Lanka. Incidentally, Sri Lanka was bailed out by the IMF four times each 1970s and 1980s, and afterwards the frequency got lesser, but there had been no escaping for the island nation from knocking at the doors of the international financial institution for emergency help.

The newly-elected Sri Lankan President Ranil Vickremesinghe had in fact been involved in the last IMF bailout negotiation in 2016, and he appears to be again retrieving his country by leaning on his international credibility.

“The new EFF arrangement will support Sri Lanka’s program to restore macroeconomic stability and debt sustainability, while safeguarding financial stability, reducing corruption vulnerabilities and unlocking Sri Lanka’s growth potential,” added the two IMF negotiators in their statement.

Reducing corruption vulnerabilities has been a significant addition in the scope of the understanding between the IMF and Sri Lanka. This is in the backdrop of the ‘GoGotaGo’ campaign squarely blaming the fugitive former president of the country Gotabaya Rajapaksa for taking the country to the state of bankruptcy by his corrupt means while hobnobbing with the bribe givers Chinese officials who exploited his weaknesses to take the island nation into deep debt trap.

Significantly, over 10 per cent of Sri Lanka’s foreign debt is accounted for by China, which funded projects which were of no utility for the people, but to gain strategic depth in the Indian Ocean as is the case with Hambantota Port where its spy ship Yuan Wang 5 docked last month for over a week.

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 IMF has stated, while adding that vulnerabilities have grown owing to inadequate external buffers and an unsustainable public debt dynamic.

It may be noted that the Easter terror attack along with the Covid-19 pandemic decimated the tourism industry of Sri Lanka, while remittances also dried up, which took the island nation to the state of bankruptcy, while whimsical decision of Rajapaksa to ban the chemical fertilisers to promote organic farming wrecked the agriculture.

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