September 25, Colombo (LNW): The International Monetary Fund (IMF) expressed its readiness to cooperate with Sri Lanka’s newly elected President, Anura Kumara Dissanayake, following the country’s preliminary agreement with international bondholders to restructure $12.5 billion in debt.
While the IMF acknowledged the progress made in Sri Lanka’s economic recovery, it emphasized the importance of continuing reforms to build on the hard-won gains made since the 2022 economic crisis. The IMF also stated it would schedule the next review of Sri Lanka’s current program soon.
Despite historically opposing IMF policies, President Dissanayake recognizes the necessity of continuing the IMF program due to Sri Lanka’s economic troubles.
However, he has vowed to renegotiate certain conditions, aiming to make the program more “people-friendly” by proposing tax exemptions on essential goods and raising the personal income tax threshold.
His administration also plans to create more public sector jobs, which could raise government expenditures. While these populist policies could threaten economic stability, Dissanayake has promised to improve tax collection to fund his initiatives without jeopardizing the country’s recovery.
One of Dissanayake’s key promises is to renegotiate the $2.9-billion IMF bailout package, along with improving the terms of agreements with international creditors.
However, this renegotiation could create uncertainty and delay the inflow of funds from the IMF, posing challenges to economic recovery. Adding to the complexity, Dissanayake appointed a new prime minister, Harini Amarasuriya, following the resignation of the previous officeholder.
Sri Lanka’s economic outlook remains fragile, as the nation deals with mounting debt that consumes over half of government revenues. Dissanayake’s election has cast doubt on whether the current debt restructuring deal will be finalized. The IMF was expected to review Sri Lanka’s reforms by October, but this timeline may shift due to the political changes and the potential renegotiations.
Though Dissanayake’s pledges to tackle corruption and bring fairness to the political system have appealed to many Sri Lankans, his intentions to alter the IMF bailout program raise concerns. Investors worry that these moves could cause further delays in debt restructuring.
Moreover, his coalition holds only three out of 225 seats in parliament, making it difficult to pass legislation or secure significant political support for his reforms.
The prospect of snap parliamentary elections, promised within 45 days of Dissanayake taking office, adds another layer of uncertainty. While these elections could strengthen his political position, they may delay crucial economic decisions and reforms.
As Sri Lanka faces this delicate balance between debt restructuring, economic recovery, and political realignments, the IMF and international creditors remain cautious. Dissanayake’s administration has not yet engaged directly with bondholders or Sri Lanka’s bilateral creditors, further delaying resolution of the country’s debt crisis.
Despite the challenges ahead, the new president has vowed to change Sri Lanka’s political culture and work toward a fairer future for its citizens. However, his economic policies and approach to debt management will be pivotal in determining Sri Lanka’s path forward.
