Sri Lanka agrees a US$3 billion loan with the IMF to boost a crisis-hit economy

(CNN) — Sri Lanka on Monday secured a large advance loan of around $3 billion from the International Monetary Fund (IMF) as the South Asian nation is going through its worst financial crisis in decades.

The deal, which has been in the making for almost a year, will aim to “restore macroeconomic stability and debt sustainability” and “unlock Sri Lanka’s growth potential,” the IMF said in a statement.

The island nation of 22 million people was rocked by weeks of unrest last year caused by shortages of food, fuel and medicine after its foreign exchange reserves fell to record lows, and dollars dried up to pay for essential imports. . Millions were left without being able to feed their families, fuel their vehicles or access basic medicines.

Sri Lankan President Gotabaya Rajapaksa has been forced to flee the country after angry protesters stormed his residence and office, demanding his resignation.

In July last year, current Prime Minister Ranil Wickremesinghe said that Sri Lanka is “bankrupt”, adding that negotiations with the IMF were “difficult”.

Monday’s loan approval will provide a much-needed respite for the nation as it faces an uphill climb to revive its faltering economy.

The IMF will immediately disburse an initial US$333 million to Sri Lanka, with more funds to follow in the coming months.

In a statement on Monday, Wickremesinghe praised the IMF’s decision, saying: “In the 75 years of Sri Lanka’s independence, there has never been a more critical period for our economic future.”

The program will be “imperative in improving Sri Lanka’s position and access to international capital markets, and will demonstrate that Sri Lanka is once again an attractive country for talent, investors and tourists,” he said.

The loan will be provided through the IMF’s Expanded Funds Facility (EFF), a mechanism established to provide financial assistance to countries in difficulty.

“For Sri Lanka to overcome the crisis, the swift and timely implementation of the EFF-backed program with strong ownership of the reforms is critical,” IMF Managing Director Kristalina Georgieva said in a statement.

Around this time last year, Sri Lankans were forced to queue for hours to buy fuel, sometimes clashing with the police and army while they waited. Rice, a staple in the country, had disappeared from many store shelves.

Amid the crisis, more than 300,000 people left the country last year to work abroad, the highest number ever recorded, According to the government.

While conditions have slowly improved, anger lingers over the country’s financial situation.

At least one person was killed last month after police fired tear gas and water cannon at protesters who had gathered in Colombo, the commercial capital, to protest the postponement of local elections that the government could not afford to hold. .

Wickremesinghe previously told parliament that local elections would not take place until the country’s economy is on the right track.

“The economy is my top priority. We won’t have a country if the economy doesn’t develop,” Wickremesinghe said at the time.