IMF Bailout to Sri Lanka
Source: Indian Express
GS II: International Relation
What is discussed under IMF Bailout to Sri Lanka?
- Economic crisis in Sri Lanka
- Objectives of Sri Lanka’s 17th with the fund
- Key highlights of the bailout
Why in News?
- The IMF has authorised a USD 2.9 billion bailout loan to Sri Lanka to aid in the country’s struggling economy.
- The IMF has conducted negotiations with Sri Lanka for a week before approving the bailout.
- The restoration of macroeconomic stability and debt sustainability is the main goal of the IMF’s bailout agreement for Sri Lanka.
Economic Crisis in Sri Lanka
- Since gaining its independence in 1948, Sri Lanka has experienced its worst economic crisis.
- Sri Lanka has a massive, unpayable amount of national debt, a budget and current account deficit, hyperinflation, and a devalued currency.
Image by Gordon Johnson from Pixabay - The Rajapaksa administration disintegrated, leaving the nation in a state of political anarchy.
- According to reports, a number of interrelated reasons are what caused the crisis to start, including:
- Tax reductions
- Money creation
- A national initiative to switch to organic or biological farming
- The 2019 Easter bombings in Sri Lanka
- COVID-19 pandemic’s effects in Sri Lanka
- Sri Lanka has been part of 16 loans arrangements with the IMF since 1950.
Impact
- Electricity and fuel shortages
- Inflation
- Schools are closed due to lack of paper, printing paper, ink ribbon and fuel
- Hospitals suspended routine surgeries and reduced laboratory tests
- Tourism is stunt
- Exports of tea and textile products diminished
- Internet providers temporarily stopped and suspended foreign channel telecast operations due to payment difficulties
- The Sri Lankan High Commission in Nigeria, consulates in Germany and Cyprus, and embassies in Iraq and Norway and its consulate in Australia were temporarily closed down due to lack of foreign reserves
Objectives of Sri Lanka’s 17th with the Fund
- To aid in financial consolidation
- Introduce new fuel and energy prices
- Increased social spending
- Boost central bank autonomy
- Restore shrinking foreign reserves
Key Highlights of the Bailout
- The IMF’s four-year Economic Revival and Restructuring Programme will have tight rules for how the economy would be governed and managed.
- Sri Lanka would have to implement a new pricing structure for commodities including petrol and electricity as part of the measures advised by IMF.
- In order to increase demand, the government will also need to provide additional resources for social programmes.
- More proportional personal income tax regulations should be put into place, and the revenue bases for VAT and corporate income tax should be expanded.
- IMF also suggests bringing back a flexible and market-determined exchange rate for its currency.
- The steps are expected to aid in the nation’s economic recovery and secure a primary surplus of 2.3% of GDP by 2024.
International Monetary Fund
- The International Monetary Fund (IMF) strives to create sustainable growth and prosperity for all 190 of its members.
- In order to boost productivity, job creation, and economic well-being, it accomplishes this by supporting economic policies that encourage monetary cooperation and financial stability.
- The IMF is governed by and responsible to its member nations.
- The IMF has three critical missions:
- Furthering international monetary cooperation
- Encouraging the expansion of trade and economic growth
- Discouraging policies that would harm prosperity
- The IMF fosters international financial stability by:
- Policy advice
- Financial assistance
- Capacity development
Daily Current Affairs : Click Here