IMF Agrees on 4 Trillion Won Bailout Package for Sri Lanka

Wang, China's Foreign Minister (left in the photo), is taking a commemorative photo before a meeting with former Sri Lankan President Mahinda Rajapaksa (elder brother of current President Gotabaya Rajapaksa) in Colombo, Sri Lanka, last January. (Photo by AP)

[Asia Economy Reporter Yujin Cho] The International Monetary Fund (IMF) has agreed to provide a $2.9 billion (approximately 3.92 trillion KRW) bailout package to Sri Lanka, which is suffering from financial difficulties due to excessive debt incurred from China's Belt and Road Initiative (the overland and maritime Silk Road connecting China and Eurasia).

On the 1st (local time), major foreign media reported that the IMF and the Sri Lankan government have reached a preliminary agreement on the bailout negotiations.

The Sri Lankan authorities stated in a press release that "this support is under the Extended Fund Facility (EFF) program and aims to restore macroeconomic stability and the sustainability of debt repayment."

The bailout agreement will be implemented once it receives final approval from the IMF Board of Directors. With the negotiations concluded, the Sri Lankan government plans to begin formal debt restructuring discussions with major creditors, including China.

Earlier, Sri Lanka declared a default, suspending external debt repayments until the IMF bailout negotiations were finalized in April, and officially entered a default status in May.

The Sri Lankan authorities said, "To meet the preconditions for concluding the IMF negotiations, tax reforms will be implemented," adding that "these reforms include increases in corporate tax and value-added tax (VAT)." Along with this, the Sri Lankan government plans to push forward with restructuring efforts such as privatization of state-owned enterprises.

Sri Lanka's total external debt amounts to $51 billion, with $28 billion subject to short-term debt restructuring.

Sri Lanka's financial difficulties stem from excessive debt incurred through participation in China's Belt and Road Initiative. Since the presidency of Mahinda Rajapaksa (the elder brother of current President Gotabaya Rajapaksa) from 2005 to 2015, Sri Lanka pursued a pro-China policy, borrowing funds from China to build large-scale infrastructure such as ports, airports, and road networks, which caused the debt to balloon to an unmanageable level.

Moreover, the COVID-19 pandemic worsened supply and demand conditions and made securing raw materials difficult, causing Sri Lanka's economy to suffer from the worst inflation.

This content was produced with the assistance of AI translation services.