IMF Will Provide Sri Lanka with Loan, but only if the Country Assures a Sustainable Path

Published on: 21 April 2022
by KnowESG
Anti-government protest in Sri Lanka 2022

Following the crisis in the island nation of Sri Lanka, the International Monetary Fund decided to offer financial assistance and discussed with Sri Lankan senior officials a loan programme to pull it out of the present economic crisis.

IMF Sri Lanka Mission Chief Masahiro Nozaki said IMF Managing Director Kristalina Georgieva had a potential discussion on lending options and policy plans with Sri Lankan authorities recently.

Nozaki added, "An IMF-supported program should be designed to resolve Sri Lanka's acute balance of payments problems and put the economy back on a sustainable growth path as early as possible."

Sri Lanka has witnessed shortages of fuel and other essentials for a while now. Following protests, the Finance Minister of Sri Lanka requested the fund formally for a Rapid Financing Instrument loan for countries needing immediate balance-of-payments support.

Nozaki said, "the IMF is very concerned about the current economic crisis in Sri Lanka and hardships suffered by the people, especially the poor and vulnerable."

However, he pointed out that the IMF's staff determined last month in an annual economic assessment that Sri Lanka's public debt was unsustainable, and the country must take actions to restore debt sustainability before receiving any IMF assistance, including the emergency Rapid Financing Instrument (RFI).

A restructuring or reprofiling of public loans is often required to restore financial sustainability, which in Sri Lanka's case would necessitate cooperation from China, one of the country's main bilateral creditors.

The IMF used low-conditionality RFI loans extensively to help nations during the COVID-19 epidemic, and it has also used them to help countries with balance of payments issues following natural catastrophes, conflicts, and commodity price shocks.

"The discussions are still at an early stage," Nozaki added.