The IMF Board approved the agreement after receiving the necessary financial guarantees to restore debt sustainability from the country’s biggest bilateral donors—China, India, and Japan—six months after Sri Lanka qualified for an IMF Extended Fund Facility of $2.9 billion to weather the worst economic crisis in its history.
In a tweet, President Ranil Wickremesinghe expressed gratitude to the IMF.
“In the 75 years since Sri Lanka gained its independence, no time has been more crucial for the country’s economic destiny. Our package was approved by the IMF Executive Board, allowing Sri Lanka to receive up to $7 billion in assistance from the IMF and IFIs. In the early hours of Tuesday, Wickremesinghe wrote on Twitter, “I thank the IMF & our international allies for support. (March 21).
While the $33 million first tranche of the IMF deal is scarcely enough to get Sri Lanka through its crisis, as Wickremesinghe noted in his tweet, it will help the nation rebuild its reputation with foreign private creditors.
The Board’s approval comes at a time when Wickremesinghe is facing criticism from Sri Lanka’s major opposition parties as well as from trade unions and civil society organizations that were at the forefront of the Aragalaya Movement, which changed the political landscape of the nation dramatically and propelled Wickremesinghe to the top position last year.
According to accusations, Wickremesinghe arbitrarily detained a number of activists in an effort to quell the protests. Additionally, he has delayed holding local body elections, citing a shortage of funding, while opposition parties assert that Wickremesinghe did so out of misplaced doubt that his side, which includes the expelled Rajapaksas and their party, the Sri Lanka Podujana Peramuna, would prevail.
Before Sri Lanka could unlock the deal with the IMF, it had to have assurances from bilateral donors that they would back its debt restructure. Prior to pushing the timeline even further because China played hard to get, Wickremesinghe had told the nation that this will occur before December 2022.
Finally, Wickremesinghe was able to inform Parliament that a “new letter” of support had been provided to the government by the Chinese Exim Bank on March 7. The Exim Bank had declared in January that it was prepared to uphold a two-year suspension on Sri Lanka’s debt to it.
This time, the Bank’s letter restated the two-year moratorium and offered to negotiate the terms of debt-treatment in the upcoming months, according to a Reuters report. The paper stated that Sri Lanka owed the Exim Bank $2.83 billion at the end of 2022, or approximately 9% of all external central government debt, and cited IMF data to support this claim.
At the end of 2022, Sri Lanka owed $ 82 billion in total to bilateral and private creditors, $ 2 billion of which must be repaid by June of this year.