IMF Announces $2.9 Bn Bailout Package for Crisis-Plagued Sri Lanka

The country has been suffering from a severe economic crisis for more than half a year.

Sri Lanka is in the midst of an unprecedented economic crisis that has led to severe shortages of fuel and other essentials.

(Photo: PTI)

The International Monetary Fund (IMF) on Thursday, 1 September, announced that it had reached an agreement with Sri Lanka for a $2.9 billion bailout package.

"IMF staff and Sri Lankan government officials have reached a staff-level agreement to support the country’s economic policies with a 48-month arrangement under the Extended Fund Facility (EFF) of about $2.9 billion," the IMF tweeted.

The agreement is, however, subject to approval by the global financial body's management and its executive board. Whether it goes through in its entirety will also depend on whether Sri Lanka will be able to follow through with measures previously agreed to.

"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," a statement by the IMF said, as per Reuters.

The IMF also stated that its programme would implement tax reforms, which would include making personal income tax more "progressive" and broaden the tax base for corporate income tax and Value Added Tax (VAT).

Sri Lanka is going through an economic meltdown since country's financial crisis of 1948, when it gained independence. Prices of essential commodities like rice, milk, and oil have spiked to unprecedented levels.

The main cause is a foreign exchange crisis, since the lack of foreign currency has led to a huge reduction in imports of essential items like petroleum, food, paper, sugar and medicines.

The financial crisis had lead to months of widespread protests and violence, which claimed the lives of many and injured hundreds. The protesters had demanded the resignation of Gotabaya Rajapaksa from the office of president, who stepped down in July after months of reluctance.

(With inputs from Reuters.)