Sri Lanka gets a USD 2.9 billion bailout from the International Monetary Fund

New Delhi: The Sri Lanka government and the country facing its worst economic crisis since independence in 1948 got a breather yesterday when the International Monetary Fund (IMF) sanctioned a $2.9 billion soft loan to the country.

This IMF support will help Sri Lanka not only to ease its debt position but also restart some of the projects that can stabilise the country's staggering economy.

However, analysts say it will continue to be a tough road full of hurdles and need a unanimous political will and support of the public to take some drastic and tough decisions for recovery.

The cash-strapped country in April 2022 declared its first-ever debt default in its history as the economic crisis since independence from Britain was triggered by forex shortages that sparked massive public protests.

Sri Lanka's economy has been hit hard by the pandemic, rising energy, food and medicine prices, and inflation of more than 50%. The currency and fuel shortages in the country led to protests and riots last year, forcing the President to flee the country and later resign.

Covid 19 further affected the tourism industry, considered Sri Lanka’s economic backbone, and remittances from citizens working abroad fell massively, coupled with some wrong decisions of significant tax cuts by the former Sri Lanka president Gotabaya Rajapaksa introduced in 2019, which lost the government income of more than $1.4 billion a year.

The foreign minister of Sri Lanka, Ali Sabry, told the BBC "The government will raise funds by restructuring state-owned enterprises and privatising the national airline."

"We have lived beyond our means. Whether we like it or not, these tough measures, which may be very unpopular, need to be taken," Mr Sabry said in an interview with BBC before the funding was announced.

"Luckily, most other than politically-motivated unions have understood that. I know they are unhappy, but they also understand we have no choice," Mr Sabry added.

Massive protests were organised by the suffering people, which overthrew the ruling government in 2022 and forced the country's President to flee, who returned to Sri Lanka after spending months in Singapore.

Sri Lanka has since shown some green shoots of progress, with the country slowly lingering back on rails, the day-to-day functions restored and shortages reduced. Tourism is trickling back. However, daily power cuts continue due to the fuel shortage, and the government struggles, Salary for employees and new jobs for the unemployed continue to remain a worry.

Sri Lanka announced cutting 6% from budgets for each ministry. Sri Lanka is also downsizing its military and defence budget and may reduce its army by half in the next five to six years.

In another recovery step, the government has doubled the income taxes for professionals, ranging from 12.5% to more than 36%, and taxes on fuel and food are also increased.

The IMF helped Sri Lanka to secure financing assurances from all its major creditors, including Japan, China, and India, which paved the way for the bailout.

Under its 'Neighbourhood First' policy, India has always come forward to help debt-ridden Sri Lanka. In the latest instance, New Delhi distributed the ration in Kalmunai, the Indian High Commission in Colombo said.

India, under challenging times, sends shiploads of rations, medicines, and some medical teams to support the civilian population.

Sri Lanka has a total foreign debt of $51 billion and must pay back $28 billion by 2027. However, Sri Lanka announced it was suspending repayment of $7 billion due last year amid a severe foreign currency shortage.

Dr S Jaishankar, India's Minister of External Affairs, who visited Sri Lanka several times since the crisis, assured full support to Sri Lanka in difficult times.

Jaishankar encourages its businesses to invest in energy, tourism and infrastructure and expressed hope that Sri Lanka's government would create a business-friendly environment.