On Monday, the International Monetary Fund said that its executive board had approved a nearly $3 billion, four-year rescue program for Sri Lanka to save the insolvent economy of the country.
The IMF stated that around $333 million would be disbursed immediately and that the decision would also allow for other organisations' financial support.
"Sri Lanka has been confronted with enormous economic and social challenges, including a severe recession, rising inflation, depleted reserves, unsustainable public debt, and heightened financial sector vulnerabilities ", IMF Managing Director Kristalina Georgieva was cited in the statement.
"Institutions and governance structures require an extensive overhaul. For Sri Lanka to overcome the crisis, rapid and timely implementation of the program backed by the EFF, with strong ownership of the reforms, is essential."
The clearance will unleash up to $7 billion in finance from the IMF and other international multilateral financial institutions, according to the office of President Ranil Wickremesinghe.
China joined Sri Lanka's other creditors in delivering debt restructuring assurances earlier this month, thereby removing the final obstacle to the approval.
"Right from the outset, we promised complete transparency in all our dealings with financial institutions and creditors." "Wickremesinghe stated from his office in a statement. "I am grateful to the IMF and our foreign partners for their assistance as we restore the economy's long-term health through cautious budgetary management and an ambitious reform plan.
Wickremesinghe stated that he had made difficult decisions to ensure stability, debt sustainability, and the growth of an inclusive and internationally alluring economy.
Sri Lanka dramatically increased income taxes and eliminated energy and fuel subsidies to meet IMF program requirements. Authorities must now consider debt restructuring with Sri Lanka's creditors.
"Having acquired precise and credible financing pledges from major official bilateral creditors, it is now crucial for the authorities and creditors to make rapid progress toward restoring debt sustainability per the IMF-supported plans." "Georgieva stated.
"The authorities' commitments to publicly accomplish a debt resolution compatible with the program criteria and equitable burden distribution among creditors promptly are appreciated," she said.
Sri Lanka suspended repayment of its foreign debt last year amid a severe foreign currency crisis caused by a decline in tourism and export revenue due to the COVID-19 pandemic, megaprojects funded by Chinese loans that did not generate income, and the release of foreign currency reserves to maintain exchange rates for a more extended period.
The currency crisis caused significant shortages of certain groceries, petrol, medicine, and cooking gas, resulting in violent street protests that drove former President Gotabaya Rajapaksa to leave and resign.
Upon becoming office, Wickremesinghe has reduced shortages and halted daily power outages lasting several hours. According to the Central Bank, its reserves have increased, and the black market no longer controls foreign exchange.
Trade unions are expected to oppose Wickremesinghe's intentions to sell state enterprises as part of his reform agenda. Public discontent may deepen if he fails to take action against the Rajapaksa family, whom the public holds accountable for the economic disaster.
Wickremesinghe's detractors accuse him of protecting the Rajapaksa family in exchange for their support of his leadership.