IMF admonishes Colombo as it pleads for changes to $2.9 billion bailout

COLOMBO: Sri Lanka’s painful austerity measures were “bearing fruit” and must be sustained, the International Monetary Fund said on Friday as the country’s new president sought changes to its $2.9 billion bailout.
Leftist leader Anura Kumara Dissanayake won last month’s presidential election promising to reverse steep tax hikes, raise public servant salaries and renegotiate an unpopular IMF bailout secured by Colombo last year.
But analysts say Dissanayake has little room to reshape the terms of the IMF deal.
The avowed Marxist held talks with IMF representatives for a second straight day on Friday, his office said in a statement.
“President Dissanayake aims to achieve the objectives of the programme in partnership with the IMF, seeking alternative approaches that will alleviate the burden on the citizens,” it said.
In his first meeting with the IMF delegation on Thursday, Dissanayake said he wanted to reduce the tax burden on lower income households.
In response, the Washington-based lender stressed that it was important not to jeopardise Sri Lan­ka’s hard-won economic recovery.
“Reform efforts are bearing fruit in terms of reviving economic growth, lowering inflation, boosting reserves and improving revenue mobilisation,” spokesperson Julie Kozack said in Washington.
“Important vulnerabilities and uncertainties do remain, and this means that sustaining reform momentum is critical.”
The Fund’s Asia Pacific Director Krishna Srinivasan called the talks “productive” and focused on maintaining “hard-won gains”.
Sri Lanka can draw down a fourth tranche of $336 million only if the lender is satisfied that leaders are sticking to the rescue plan’s revenue and spending targets.
Sri Lanka’s new president has said he also wants to conclude a tentative deal his predecessor had negotiated to restructure $12.5 billion in international sovereign bonds, but wanted more concessions for the cash-strapped nation.
Sri Lanka has already secured debt restructuring deals with its official creditors, including China, Japan and India, the top three bilateral lenders.
Indian Foreign Minister Subrahmanyam Jaishankar, who was the first foreign dignitary to call on Dissanayake after his inauguration, pledged New Delhi’s support to restructure Sri Lanka’s external debt, the Indian High Commission said.
“The President conveyed his appreciation in that regard,” the High Commission said.
Sri Lanka defaulted for the first time in 2022 after running out of foreign exchange during its worst-ever financial crisis.
Last year’s IMF bailout helped end crippling shortages of food, fuel and medicine and returned the economy to growth, but its austerity measures left millions struggling to make ends meet.
Published in Dawn, October 5th, 2024