Time News Desk: Bankrupt Sri Lanka yesterday agreed a conditional $2.9 billion bailout with International Monetary Fund negotiators, as the island nation seeks to overcome a bruising economic crisis that saw its president flee the country.
Months of acute food, fuel and medicine shortages, extended blackouts and runaway inflation have plagued the country after it ran out of dollars to finance even the most essential imports.
Sri Lanka has defaulted on its $51 billion foreign debt and in July angry protesters stormed the home of then-president Gotabaya Rajapaksa, with the leader subsequently fleeing the island and issuing his resignation from Singapore.
"This is an important step in the history of our country," said successor President Ranil Wickremesinghe of the IMF deal.
"The beginning will be difficult. But we know as we go on, we can make more progress. It is our commitment that matters now."
The IMF board will need to ratify yesterday's staff agreement, which is conditional on the Sri Lankan government striking a deal with creditors to restructure its borrowings.
China Sri Lanka's biggest bilateral lender accounting for more than 10 percent of borrowings has so far not publicly shifted from its offer of issuing more loans instead of taking a cut on outstanding loans.
The IMF's announcement of the $2.9 billion package, spread over four years, is short of the $3-4 billion sought by Sri Lanka.
The government welcomed the announcement but warned the public that painful economic reforms were still necessary.
"We will have to make major sacrifices," Prime Minister Dinesh Gunawardena told parliament.
Financial analyst WA Wijewardena, a former central bank deputy governor, said the government would need to implement more painful reforms to secure funding.
He added that raising government revenue, currently one of the world's lowest, would be a serious challenge given the current state of the economy.
The central bank expects a record eight percent GDP contraction this year, slightly below the IMF's forecast of 8.7 percent.
The IMF said Sri Lanka had agreed to increase revenues, remove subsidies, ensure a flexible exchange rate and rebuild its foreign reserves, which had hit rock bottom.
President Wickremesinghe, who took office after his predecessor fled, announced further tax hikes and sweeping reforms this week as part of efforts to bring debt under control.
His government had already raised prices on fuel and electricity more than threefold and removed energy subsidies, a key precondition for the IMF bailout.
The coronavirus pandemic was a hammer-blow to the island's tourism industry and dried up remittances from Sri Lankans working abroad both key foreign exchange earners.