COLOMBO: The International Monetary Fund (IMF) on Thursday said it has made “significant progress” in talks with Sri Lanka, which has sought the global financial institution’s help to cope with its unprecedented economic crisis. 

Concluding a ten-day visit to the island nation, an IMF team said: “Significant progress was made, and discussions will continue virtually towards reaching a staff-level agreement on the EFF arrangement in the near term.” 

Outlining its proposal for Sri Lanka’s recovery, the Fund said in a statement: “The objectives of the new IMF-supported program would be to restore macroeconomic stability and debt sustainability, while protecting the poor and vulnerable, safeguarding financial stability, and stepping up structural reforms to address corruption vulnerabilities and unlock Sri Lanka’s growth potential.” 

Sri Lanka is counting on the IMF to bail its economy out of crisis, with an Extended Fund Facility. The government is also looking to restructure its piling external debt with the IMF-backed programme. In April 2022, Sri Lanka announced a pre-emptive default on its nearly $ 50 billion foreign loans, amid a severe dollar crunch stemming from a balance of payments crisis. 

Reserves under strain

 

Sri Lanka is still heavily reliant on imports, more so after domestic agriculture production dropped by half after a controversial ban on chemical fertilizer last year. The country spends about two billion dollars on essential imports every month. Gross official reserves in March 2022 stood at $1,917 million, Central Bank data showed. This includes a currency swap from the People’s Bank of China, for nearly US dollars 1.5 billion, usable only based on certain conditions. Effectively, Sri Lanka has about $500 million at its disposal, accounting for a week’s essential imports roughly, or a month’s fuel imports alone. With the government unable to pay for fuel imports, Sri Lankans are currently experiencing acute shortages of petrol, diesel and kerosene, as the country comes to a near-standstill.  

Prime Minister Ranil Wickremesinghe has warned citizens that the next few months would be “most difficult”, amid shortages and record inflation. India, Sri Lanka’s top lender this year, has extended about $ 3.5 billion assistance by way of currency swaps, credit lines and loan deferment. However, any further bilateral assistance from India or other partners, appears contingent on an IMF programme being finalised, officials in Colombo indicate.  

Political response

Meanwhile, as citizens’ protests continue, demanding that President Gotabaya Rajapaksa step down, the government on Thursday gazetted a constitutional amendment, the 22nd Amendment Bill, pitching it as political reform. However, it is far from addressing the core demands of the mass agitations, legal experts and government critics contended. 

Colombo-based NGO the Centre for Policy Alternatives noted that the Bill does not curtail the powers of the President, or introduce checks and balances “in any meaningful manner”. “In the absence of any genuine attempt to address the inherent problems of governance, this attempt at reform will only worsen the existing political and economic crisis and destroy whatever little remaining faith citizens might have in constitutional governance,” it said in a statement, deeming the Bill “at best a futile effort in window-dressing” to show the government’s intent for change. 

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