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After China, India aid, is IMF help Sri Lanka’s best hope as Rajapaksa battles worst economic crisis since independence?
- Before reversing course and asking the IMF for help, Sri Lanka already approached China and India for billions in credit
- A slide in foreign exchange reserves has left Sri Lanka struggling to pay for essential imports, including food and fuel, leading to growing unrest
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As anger in Sri Lanka mounts over massive food and fuel shortages, the government is hoping to negotiate a financial lifeline from the International Monetary Fund to end the country’s spiralling economic crisis.
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Finance Minister Basil Rajapaksa will head to Washington this month to discuss bailout terms for the island nation of 22 million that is saddled with huge debts, a junk credit rating and depleted foreign exchange reserves.
Gotabaya Rajapaksa, Sri Lanka’s strongman populist president and Basil’s older brother, made a policy U-turn last month and agreed to seek an IMF rescue as demonstrators took to the streets.
“Seeking IMF help is the way forward to stabilise our finances,” said Nimal Sanderatne, an ex-senior central bank economist. But the fiscal and monetary reforms required will be “extremely painful and politically challenging,” he added.
Sri Lanka was once South Asia’s best-performing economy even as it binged on debt – first to pay for a long civil war against Tamil insurgents that ended in 2009, then to fund post-war construction.
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