The International Monetary Fund (IMF) approved a loan of USD 3 billion (about EUR 2.7 billion) for Sri Lanka on Monday. With the money, the Asian country hopes to emerge from the worst economic crisis since independence.
The deal has been in the works for almost a year and is seen as a lifeline to get out of the economic slump. The population has long been burdened by rising prices and shortages of basic products such as food, medicines and fuel.
The economic problems led to mass demonstrations last year. Thousands of demonstrators stormed the presidential palace in July. Hundreds of them managed to enter the official residence. They jumped in the pool, lay in beds or sang around a piano. The mass demonstrations led to the eventual resignation of President Gotabaya Rajapaksa. The prime minister and cabinet had resigned months earlier.
Since then, negotiations have been underway with the IMF and creditors to ease the economic problems. That first step, a billion-dollar loan from the IMF, was finally finalized on Monday.
In exchange for the loan, the Sri Lankan government will implement reforms at state-owned companies, among other things. The national airline, Sri Lankan Airlines, is also being privatized. Furthermore, the country will continue negotiations with creditors in the coming months.
Problems kept getting bigger
Sri Lanka has been in increasing economic trouble in recent years. While the government points to the declining number of tourists, economists mainly point to the role of government policy in this.
For example, in 2009 it was decided that the items that were made in Sri Lanka should mainly remain in the country. As a result, fewer Sri Lankan items crossed the border, while a lot still had to come from outside. This policy meant that the island state had less and less foreign money at its disposal: less came in, while just as much went out. That money is needed to get stuff from abroad.
The problems further increased when the country received fewer foreign tourists, first because of terrorist attacks and then because of the corona pandemic. Due to these increased economic problems, countries and international institutions became hesitant to lend money to Sri Lanka. This only deepened the economic hole in which the island nation ended up.
To make matters worse, the government decided to stop importing fertilizer in 2021. For example, the president wanted to save foreign money, which was needed for essential items such as food, medicine and fuel. This led to failed harvests, with the result that even more food had to be imported from abroad.
Shortage of money leads to shortage of everything
Because the amount of foreign money was getting smaller and smaller, Sri Lanka could no longer pay for things from abroad. Food, medicines and especially fuel became increasingly scarce as a result. As a result, the power went off more often, it was often hardly possible to refuel and public transport was only dribs and drabs.
Due to these shortages, prices also rose sharply, with inflation figures (price increases) of more than 50 percent. The unrest grew as a result, which eventually led to mass demonstrations and regime change. With the loan from the IMF, Sri Lanka now hopes to put that era behind it. “We are on our way to better days,” Foreign Minister Ali Sabry said on Twitter on Monday.