Law on the location of the National List of NDF – The Island

Amal JAYASINGHE

Sri Lanka’s new leader on Thursday backed a controversial IMF bailout program, marking a reversal of his campaign promise to renegotiate a deal negotiated by his predecessor.

Leftist President Anura Kumara Dissanayake, who strengthened his grip on power last week after winning a huge majority in the legislature following his own victory in September, has vowed to maintain the IMF program.

Sri Lanka asked the IMF for a bailout package after the country defaulted on its $46 billion foreign debt in April 2022 during an unprecedented economic crisis.

A foreign exchange shortage that left the country unable to finance even essential food and fuel imports led to months of street protests and forced then-President Gotabaya Rajapaksa to resign.

A $2.9 billion loan received early last year required Colombo to sharply raise taxes, end generous energy subsidies and agree to restructure more than 50 loss-making state-owned enterprises.

Dissanayake’s National People’s Power Party said it disagreed with the International Monetary Fund’s debt assessment and would review the bailout program.

But in his first address to the new Parliament, where his party has a two-thirds majority, Dissanayake said the economic recovery was too fragile to risk.

“The economy is in such a state that it cannot bear the slightest shock… there is no room for error,” he said, ruling out negotiations with either the IMF or creditors.

“This is not the time to discuss whether the terms are good or bad, whether the agreement is beneficial to us or not… The process took about two years, and we cannot start all over again,” he said.

The delayed third review of the four-year lending program could be completed by this weekend when the Finance Ministry holds talks with an IMF delegation in Colombo, he added.

Sri Lanka expects the next tranche of about $330 million following early approval from the board of directors of the international lender of last resort.

Dissanayake’s caretaker cabinet last month signed off on a controversial $14.7 billion restructuring of foreign commercial loans previously agreed by his predecessor Ranil Wickremesinghe.

Debt restructuring is a key IMF requirement to revive the island’s economy, which suffered its worst crisis in 2022 when it contracted by 7.8 percent.

Dissatisfaction with traditional politicians, who were seen as responsible for the economic collapse, was a key factor in Dissanayake’s electoral success.

In June, the government struck a deal with its bilateral creditors to restructure its $6 billion official loan, but formal agreements have yet to be signed.

Under the agreement announced Sept. 19, private lenders holding more than half of the South Asian country’s international government bonds and foreign commercial loans agreed to a 27 percent discount on their loans.

They also agreed to a further 11 percent reduction in the interest they were owed. International sovereign bonds total $12.5 billion, with the balance of $2.2 billion coming from the China Development Bank.