Sri Lanka’s newly elected President Anura Kumara Dissanayake has announced his support for the International Monetary Fund (IMF) bailout programme, reversing his earlier campaign pledge to renegotiate the deal. This shift reflects the dire state of the country’s economy and the critical need for stability, despite the political and social controversies surrounding the IMF agreement.
In his first parliamentary address since securing a sweeping majority, President Dissanayake emphasized the fragile state of Sri Lanka’s economy, warning that even minor shocks could derail the recovery efforts. His announcement signaled a commitment to continue the IMF programme implemented by his predecessor, Ranil Wickremesinghe, marking a pragmatic approach to governance amid challenging circumstances.
Sri Lanka’s economic crisis, which culminated in its default on $46 billion in external debt in April 2022, was the worst the nation has faced since gaining independence in 1948. A severe shortage of foreign exchange paralyzed imports of essential items like food, fuel, and medicine, leading to months of unrest and massive street protests.
The upheaval forced then-President Gotabaya Rajapaksa to resign, creating a political vacuum and opening the path for economic reforms under the leadership of Wickremesinghe. The $2.9 billion IMF loan secured early last year came with strict conditions.
- Sharp tax increases,
- Removal of energy subsidies,
- Privatization and restructuring of 50+ loss-making state enterprises.
Despite the heavy socio-economic costs, these measures were seen as critical to rebuilding trust with international creditors and reviving the country’s economy.
President Dissanayake, representing the leftist National People’s Power (NPP) party, rose to prominence by capitalizing on widespread dissatisfaction with traditional politicians. His campaign promised a fresh approach, including renegotiating the IMF deal, which his party criticized as overly burdensome and misaligned with Sri Lanka’s needs.
However, his parliamentary address on Thursday revealed a stark shift in position. “The economy is in such a state that it cannot take the slightest shock,” Dissanayake said, ruling out any renegotiation of the IMF deal or debt restructuring agreements. He stressed that restarting the negotiation process would only prolong the country’s economic uncertainty.
“This is not the time to discuss if the terms are good or bad,” he added. “The process had taken about two years, and we cannot start all over again.”
Debt restructuring remains a cornerstone of Sri Lanka’s economic recovery plan. The country has made progress in addressing its staggering foreign debt, which includes $12.5 billion in international sovereign bonds and $2.2 billion owed to the China Development Bank.
- June Agreement with Bilateral Lenders: Restructuring $6 billion in official credit, though formal agreements are pending.
- September Deal with Private Creditors: More than half of bondholders agreed to a 27% haircut on loans and an additional 11% reduction on interest owed.
Last month, the interim cabinet approved restructuring $14.7 billion in foreign commercial credit—a contentious decision but one deemed necessary to satisfy IMF requirements.
Dissanayake’s administration is banking on securing the next IMF tranche of $330 million soon, following the delayed third review of the four-year programme. Talks with an IMF delegation in Colombo are ongoing, and early approval from the board could provide a much-needed financial boost.
The reversal of his campaign pledge is expected to test Dissanayake’s political capital. The public, already weary from high taxes and reduced subsidies, has expressed mixed reactions to the IMF deal.
Supporters of Stability: Many view the continuation of the IMF programme as essential to stabilizing the economy. Business groups and international investors have welcomed the president’s commitment, as it signals policy continuity.
Critics of Austerity: On the other hand, critics argue that the IMF’s stringent conditions disproportionately impact lower-income groups. The removal of subsidies, in particular, has sparked protests in rural areas, where energy costs and transportation expenses have skyrocketed.
Dissanayake’s NPP came to power on a wave of discontent, promising to address these inequities. His endorsement of the IMF programme, therefore, risks alienating segments of his voter base that had hoped for a less austere recovery path.
The president’s decision underscores the depth of Sri Lanka’s economic challenges. In 2022, the economy contracted by a staggering 7.8%, with inflation reaching record highs and the rupee losing value rapidly. While inflation has since eased, and growth is expected to rebound modestly, structural vulnerabilities persist.
- Restoring Public Services: Ensuring access to affordable healthcare, education, and transportation for vulnerable populations.
- Boosting Revenue: Continuing tax reforms and improving tax compliance without further burdening the middle and lower classes.
- Attracting Foreign Investment: Stabilizing the macroeconomic environment to encourage international business and tourism.
- Energy and Food Security: Reducing dependence on imports by promoting domestic production and renewable energy projects.
Sri Lanka’s economic trajectory is being closely watched by neighboring countries and global financial institutions. The IMF bailout, combined with debt restructuring agreements, serves as a potential model for other nations grappling with similar crises, such as Zambia and Lebanon.
Moreover, the involvement of China—a significant bilateral creditor—adds a geopolitical dimension to Sri Lanka’s debt negotiations. While China has agreed to partial debt relief, its broader stance on restructuring remains cautious, reflecting its growing influence in South Asia.
