Sri Lanka reaches out to IMF for help as FM Rajapaksa departs for New Delhi to sign fresh bailout package with India

On Tuesday, Finance Minister Basil Rajapaksa gave the nod to seek assistance from the International Monetary Fund

March 15, 2022 04:38 pm | Updated 04:38 pm IST - Colombo

Sri Lankan FM Basil Rajapaksa. File

Sri Lankan FM Basil Rajapaksa. File | Photo Credit: MEERA SRINIVASAN

Sri Lankan government will seek financial support from the IMF, softening its resistance against the international lender as it desperately tries to salvage the country’s beleaguered economy that is currently reeling under a severe foreign exchange crisis.

On Tuesday, Finance Minister Basil Rajapaksa gave the nod to seek assistance from the International Monetary Fund (IMF).

“The Cabinet approval has been given to the Finance Minister to go ahead and discuss with the IMF”, Cabinet spokesman Ramesh Pathirana told reporters.

Sri Lanka's economy was facing "mounting challenges" with public debt reaching "unsustainable levels", the IMF has said earlier this month, calling for urgent reforms in the island nation's economy as it is facing the worst economic crisis.

Sri Lanka is currently reeling under a severe foreign exchange crisis with falling reserves and the government is unable to foot the bill for essential imports.

“Sri Lanka has been hit hard by COVID-19. On the eve of the pandemic, the country was highly vulnerable to external shocks owing to inadequate external buffers and high risks to public debt sustainability, exacerbated by the Easter Sunday terrorist attacks in 2019 and major policy changes including large tax cuts at late 2019," the IMF said in a release after global lender's executive board’s consultative meeting held on February 25.

On Monday, IMF head of Asia Pacific Changyong Rhee met Rajapaksa to discuss the finer aspects of the package.

Mr. Pathirana said technical assistance would be sought from the IMF.

Meanwhile, Finance Minister Rajapaksa departed to New Delhi on Tuesday to sign a fresh bailout package with India for USD 1 billion dollars.

The credit line is expected to fund the country’s fuel, food and medicine imports, the finance ministry said.

Last month, Sri Lanka purchased 40,000 metric tonnes of diesel and petrol from India's oil major Indian Oil Corporation to meet the urgent energy requirements in the economic crisis worsened by depleted foreign reserves.

“India a committed partner and a true friend of Sri Lanka. The High Commissioner (Gopal Baglay) handed over 40,000 MT fuel consignment by Indian Oil Company,” a statement issued by the Indian High Commission here had said.

India had also announced a $900 million loan to Sri Lanka to build up its depleted foreign reserves and for food imports, amid a shortage of almost all essential commodities in the country.

Sri Lanka's worsening foreign-exchange shortage has seriously impacted the energy sector, which depends entirely on imports for its oil needs.

The fuel shortage has led to long queues at understocked pumps across the country.

Sri Lanka's economy is also seeing a scarcity of food and other essentials, which has pushed inflation to a record 25%t last month. Tourism, another key foreign-exchange earner, has also witnessed a lull due to the pandemic.

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