Sri Lanka’s recovery still challenging: IMF

WASHINGTON

Cash-strapped Sri Lanka’s economy showed “tentative signs of improvement” but recovery remains challenging and Colombo must pursue painful reforms, the IMF said on June 2.

The International Monetary Fund’s Deputy Managing Director Kenji Okamura said the country was emerging from its unprecedented crisis thanks to reforms including the doubling of taxes, spending cuts and the scrapping of subsidies.

A currency crisis since late 2021 led to severe shortages of food, fuel and medicines and triggered months of protests that led to the toppling of former president Gotabaya Rajapaksa in July.

“We discussed the importance of fiscal measures, in particular revenue measures, for a return to macroeconomic stability,” Okamura said in a statement on June 2 after meeting President Ranil Wickremesinghe on May 31.

Sri Lanka defaulted on its $46 billion external debt in April last year, and is still negotiating with its bilateral and private creditors on repayments.

“Now, more than ever, it is essential to continue the reform momentum under strong ownership by both the authorities and the Sri Lankan people,” Okamura added.

Wickremesinghe, speaking to the nation on June 1, vowed to press ahead with restructuring loss-making state enterprises despite resistance from trade unions.

He said the state oil company, the electricity utility and national carrier Sri Lankan Airlines made losses of more than $1.32 billion in 2021.

Wickremesinghe’s new government secured a $2.9 billion bailout from the IMF in March under a 48-month program that commits Colombo to painful reforms.

Foreign debt restructuring was held up as the country’s main bilateral creditor, China, was initially reluctant to take a haircut and instead offered more loans to pay off old debts.

Just over $14 billion of the total foreign credit is bilateral debt to foreign governments, 52 percent of which is owed to China.