HAS THE IMF REALLY BAILED SRI LANKA OUT OF DISTRESS?

WO and a half years after Sri Lanka announced a sovereign default on all its foreign debt of about $51 billion and sought a rescue package from the International Monetary Fund (IMF), two pertinent questions arise.

- BISWAJIT DHAR

The first is whether IMF's Extended Fund Facility (EFF) provided to Sri Lanka in March 2023, a four-year bailout package of about $3 billion, has been able to put the country onto a sustainable path of recovery from its worst ever post-independence economic crisis. After all, the IMF had extended the support to the crisis-stricken country to "restore macroeconomic stability and debt sustainability, safeguarding financial stability, and stepping up structural reforms".

Secondly, has the IMF programme put Sri Lanka on a path of reducing debt distress?

The announcement of debt default meant the country, once an unqualified economic success story in South Asia, was facing an unprecedented economic crisis since the Covid-induced downturn. Sri Lankan economy had shrunk by about 8 percent in 2022, while the inflation rate was galloping at over 50 percent. Foreign exchange reserves had suffered a precipitous fall since the end of 2020 and was below $2 billion at the end of March 2022, enough for just 10 days of imports, as against a 3-month import cover the IMF considers adequate.

These downsides created shortages of essentials, including food and fuel. But more importantly, it increased the number of people below the poverty line by about half a million in 2021. Based on the Household Income and Expenditure Survey of 2022, the Department of Census and Statistics estimated that about 60 percent of total households were below the poverty line.