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PoliticsSri Lanka

Sri Lanka in bailout discussions with the IMF

July 29, 2022

The World Bank will not offer fresh funding for Sri Lanka, a bankrupt island nation whose former leader just fled. The Finance Ministry says technical discussions have resumed with the International Monetary Fund.

Cars lined up to purchase fuel
With food and fuel being rationed in Sri Lanka, drivers queued up to put gas in their vehiclesImage: Pradeep Dambarage/NurPhoto/picture alliance

Sri Lanka said bailout discussions with the International Monetary Fund (IMF) had resumed Friday after the World Bank said it would not be able to offer the country fresh funding without "deep structural reforms."

The island nation of Sri Lanka is bankrupt, and its economy is in a death spiral. Fresh figures released on Friday showed year-on-year inflation in July hitting a record 60.8%.

The news comes as China plans to send a military ship to the port of Hambantota, a Chinese-built and -leased port in southern Sri Lanka. India is concerned China is using the port as a military base in its backyard.

India has provided Sri Lanka with $4 billion (€3.9 billion) in aid funding this year. China is also a major creditor of Sri Lanka's.

Why did the World Bank refuse Sri Lanka funds?

Sri Lanka's 22 million people have been confronted with food and fuel shortages for months, as well as rolling blackouts in addition to soaring inflation.

In April, Sri Lanka defaulted on $51 billion in foreign debt. Massive protests earlier this month caused the ouster of former president, Gotabaya Rajapaska, who fled the country prior to resigning, initially by email.

The World Bank said it was concerned for the fate of the people of Sri Lanka, but added in a statement that it was not able to give funds "until an adequate macroeconomic policy framework is in place."

The World Bank also called for "deep structural reforms that focus on economic stabilization, and also on addressing the root structural causes that created this crisis."

Additionally, the World Bank said it had already diverted $160 million from existing loans to provide urgently needed medicines, gas for cooking and school meals.

The discussions for a bailout from the IMF could last months despite the urgent need.

Sri Lanka is also in the process of trying to reestablish a functioning government, with former Prime Minister Ranil Wickremesinghe having taken over as acting president. Opposition parties are trying to reach a deal on a broad coalition to replace the previous government.

Why is the need for funding so urgent in Sri Lanka?

Sri Lanka is out of foreign exchange reserves with which to finance even urgently needed necessities. The shortage economy has led to domestic political strife as people take to the streets in protest.

Drivers in Sri Lanka must wait in long lines for rationed gas. The government has told state employees to stay home to save fuel.

The UN's World Food Program estimates that over 85% of Sri Lankans have bought lesser-quality food, eaten less or skipped meals during the crisis.

Young Sri Lankans try their luck abroad

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On July 9, protesters stormed the presidential palace. Then President Rajapaska fled to Singapore before emailing and later sending a letter announcing his resignation.

The Wickremesinghe has declared a state of emergency and had some of the people who organized the mass protests arrested this week.

ar/msh (AFP, Reuters)

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