Bankrupt Sri Lanka will receive a conditional $2.9 billion bailout, the International Monetary Fund (IMF) said on Thursday after a devastating economic crisis that saw the island nation’s president forced out of the country.

Months of severe food, fuel and medicine shortages, prolonged blackouts and runaway inflation have plagued the country.

The country has defaulted on $51 billion in external debt, and enraged protesters stormed the home of then-President Gotabaya Rajapaksa in July, prompting him to flee the island and resign from Singapore. expressed.

“Sri Lanka faces a deep crisis… disproportionately burdened by the poor and vulnerable,” the IMF said in a statement after nine days of talks in the capital Colombo.

The IMF Executive Board must ratify Thursday’s staff agreement, which is contingent on the government reaching agreements with creditors to restructure its debt.

But lender mission chief Peter Breuer said creditors needed to help Sri Lanka emerge from a “deep crisis” and get back to paying its debts.

“It is in the interests of all creditors to cooperate with Sri Lanka in this area,” Breuer told reporters.

“If creditors are unwilling to provide these guarantees, it will actually exacerbate the crisis in Sri Lanka and undermine its ability to repay.”

China, the country’s largest bilateral lender, accounting for more than 10% of its borrowings, has so far succumbed to public outcry from proposals to issue more loans in exchange for reducing outstanding loans. not changed to

– “Critical Issues” –

Breuer could not say when the IMF loan would be available, but said Sri Lanka’s needs were “urgent” and had to be addressed immediately with additional support from other lenders. emphasized.

“Additional funding from multilateral partners will be required to fill the funding gap,” Breuer said.

The IMF’s announcement of a four-year $2.9 billion package falls short of Sri Lanka’s $3 to $4 billion demand.

The government welcomed the announcement but warned the public that painful economic reforms were still needed.

Prime Minister Dinesh Gunawardena told parliament on Thursday: “In the future, great sacrifices will have to be made to find solutions to the factors that have led to this economic collapse.

Financial analyst WA Wijewardena, former central bank deputy governor, said the government will have to implement more difficult reforms to secure funding.

“This shows that Sri Lanka should do more to meet IMF requirements,” he told AFP. “Debt sustainability is an important issue.”

He said raising government revenue, which is currently one of the lowest in the world, would be a serious challenge given the current state of the economy.

The central bank is forecasting a record 8% GDP contraction this year, just below the IMF’s forecast of 8.7%.

– more taxes –

According to the IMF, Sri Lanka has agreed to increase revenues, end subsidies, ensure flexible exchange rates and rebuild its bottomed foreign exchange reserves.

President Ranil Wickremesinghe, who took office after his predecessor fled, this week announced further tax increases and sweeping reforms in an effort to bring the debt under control.

His government had already more than tripled the price of fuel and electricity and eliminated energy subsidies, a key prerequisite for the IMF bailout.

The coronavirus pandemic has hit the island’s tourism industry and dried up remittances from Sri Lankans working abroad. Both are major foreign currency earners.

The Rajapaksa government has been criticized for introducing unsustainable tax cuts that have pushed up government debt and exacerbated the crisis.

Inflation hit a new monthly record in August, with the country’s main benchmark rising 64.3% on average in price, while the rupee has fallen more than 45% against the dollar this year.

Officials resisted seeking bailout from the IMF until the country’s debt burden forced it to default in April.

During peak gasoline shortages in Sri Lanka, drivers had to wait weeks to refill their tanks.

Public outrage over the government’s mismanagement of the crisis reached a climax in July when protesters stormed Rajapaksa’s official residence and occupied several other government buildings.

After taking power, Wickremesinghe ordered a crackdown, with security forces stopping demonstrations and arresting protest leaders.

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