The Struggle is Real
Sri Lanka, the island nation in South Asia, has been facing its worst economic crisis since its independence. The country’s economy has been hit hard by the pandemic, rising energy prices, populist tax cuts, and inflation of more than 50%. The country’s economic turmoil has further led to a shortage of medicines, fuel, and other essentials, which has helped push the cost of living to record highs, triggering nationwide protests that overthrew the ruling government in 2022. As a result, the country defaulted on its debts with international lenders for the first time in its history, sending shockwaves across the global financial landscape.
Bailout Deal and Government Measures – A Glint of Hope
To address its economic challenges, Sri Lanka has secured a $2.9 billion bailout from the International Monetary Fund (IMF) in a deal that has been nearly a year in the making. This bailout deal is seen as a lifeline for the country that has billions of dollars in loans. The government plans to raise funds by restructuring state-owned enterprises and privatizing the national airline. Earlier this year, the country introduced income taxes for professionals, ranging from 12.5% to more than 36%. It also raised other taxes to pay for critical purchases, including fuel and food. This is in contrast to the big tax cuts introduced in 2019, which lost the government income of more than $1.4 billion a year.
Analysts’ Warnings – Still a Bumpy Road Ahead
Despite the bailout deal and government measures, analysts warn that Sri Lanka still faces a tough road ahead. Andrew Wood, an analyst at the S&P Global Ratings agency, said that Sri Lanka still needs to consolidate its government balance sheet, achieve consistent economic growth, and external stability. The agency also expects the country’s economy to contract again in 2023 before returning to growth in 2024.
Financing Assurances and Debt – A Race Against Time
Earlier this month, the IMF said Sri Lanka had secured financing assurances from all its major creditors, including China and India, which paved the way for the bailout. However, the Sri Lankan government initially hoped to agree on a new payment plan with China and India by the end of 2022. Beijing’s lending to Sri Lanka stands at around $7 billion while India is owed around $1 billion. The foreign minister of Sri Lanka, Ali Sabry, said that it was “a little premature” to discuss if China would consider writing off some of the country’s debts, adding that the country has the will to pay but not the capacity to pay.
The Way Forward – A Hope for a Better Future
The bailout deal provides much-needed relief for Sri Lanka’s struggling economy. However, the country still needs to take difficult measures to address its economic challenges. The government’s plans to restructure state-owned enterprises and privatize the national airline may help raise funds, but the country needs to implement sustainable policies to ensure long-term growth and stability.
Conclusion
In conclusion, the IMF bailout is a significant step forward for Sri Lanka’s economy. However, the country still has a long road ahead to achieve economic growth and stability. The government needs to implement sustainable policies, address its debts, and work on increasing its capacity to pay back its loans to ensure a better future for its people. The perplexing and bursted nature of Sri Lanka’s economic struggles underscores the complexity of the challenges the country faces and the need for innovative solutions to overcome them.
