The International Monetary Fund (IMF) announced on Friday that debt-ridden Sri Lanka, which declared bankruptcy last year, is showing some signs of economic improvement. However, the country’s recovery still faces challenges. Sri Lanka announced that it would declare bankruptcy in April 2022 and stop making payments on part of its foreign debt. In March, it reached an agreement with the IMF for a four-year, nearly $3 billion rescue program.
IMF representative, Yutaka Okamura, met with top leaders and officials of Sri Lanka and said he welcomed the authorities’ “strong commitment to implement ambitious economic policies.” Previously, the IMF stated that Sri Lanka’s economy contracted by 3% this year but expects to resume growth in 2024. Economic growth is expected to depend mostly on the economic reforms agreed by Sri Lanka.
Sri Lanka’s external debt exceeds $51 billion, and $28 billion is currently in negotiations with creditors for debt restructuring. Okamura said that the current economic crisis began with policy failures exacerbated by external shocks. He discussed the importance of fiscal measures, especially revenue measures, for the return to macroeconomic stability.
Sri Lanka’s economic crisis and resulting shortages of basic necessities sparked riots last year that forced then-President Gotabaya Rajapaksa to flee. Despite some signs of progress under current President Ranil Wickremesinghe, the government still struggles to raise funds. Public dissatisfaction is growing over the government’s recent move to raise taxes and electricity bills to win a bailout from the IMF.