According to the IMF, Sri Lanka’s economic recovery is showing signs of improvement, but challenges remain

COLOMBO, Sri Lanka — Indebted Sri Lanka, which declared bankruptcy last year, is showing signs of economic improvement, but its recovery still faces challenges, the International Monetary Fund said on Friday.

The Indian Ocean island nation filed for bankruptcy in April 2022 and announced it would suspend repayment of its foreign debts. In March, he agreed with the IMF on a four-year rescue program of nearly 3 billion dollars.

“Sri Lanka’s economy is showing rudimentary signs of improvement, partly due to the implementation of critical policy measures. However, economic recovery remains a challenge,” IMF Deputy Managing Director Kenji Okamura said after concluding a visit to Sri Lanka where he met with the country’s top leaders and officials.

Okamura welcomed the Sri Lankan authorities’ “strong commitment to the implementation of their ambitious economic program supported by the IMF”.

The IMF earlier said Sri Lanka’s economy is expected to grow again in 2024, following a 3 percent contraction this year. The expected economic growth of 1.5% for next year depends mainly on the economic reforms undertaken by Sri Lanka.

“Now more than ever, it is important to continue the momentum of reform with strong ownership by the authorities and the Sri Lankan people,” Okamura said in a statement early Friday.

Sri Lanka’s foreign debt is over $51 billion, of which $28 billion must be repaid by 2027. Sri Lanka has now started debt restructuring talks with its creditors.

“The current economic crisis is rooted in policy mistakes, exacerbated by external shocks. We discussed the importance of fiscal measures, especially revenue measures, in terms of returning to macroeconomic stability. I was encouraged by the authorities’ commitment to negotiate a debt strategy in a timely and transparent manner. Continued open dialogue with creditors will help reach restructuring agreements to restore debt sustainability in line with the program’s objectives,” Okamura said.

Sri Lanka’s economic crisis and the resulting shortage of essential goods sparked riots last year that forced then-President Gotabaya Rajapaksa to flee the country and resign.

Unsustainable debt, a severe balance of payments crisis alongside the lingering wounds of the COVID-19 pandemic, and the government’s insistence on spending scarce foreign reserves to prop up the Sri Lankan rupee have led to severe foreign exchange shortages and fundamental deficiencies. as fuel, medicine, cooking gas and food.

Although there are signs of progress – reducing the deficit and restoring day-to-day functions – under the current presidency of Ranil Wickremesinghe, the government is still struggling to find money to pay its employees and carry out other administrative tasks.

Public discontent is growing over the government’s recent move to raise taxes and electricity bills as part of a commitment to get an IMF bailout.

The government has announced a 6 percent cut in the budgets of individual ministries this year, and plans to nearly halve the size of the army, which swelled to more than 200,000 because of the long civil war that ended in 2009.