India played key role in IMF’s clearance of 48-month EFF to Sri Lanka


India played a crucial role in the International Monetary Fund (IMF’s) clearance of a 48-month Extended Fund Facility (EFF) worth USD 2.9 billion to crisis-hit Sri Lanka, reported True Ceylon.

India earnestly supported Sri Lanka in this arduous journey of mobilizing IMF support amid a serious foreign exchange crisis and consequent harsh economic conditions.

The Government of India’s sense of urgency to help Sri Lanka to withstand one of the worst economic storms in decades was driven by people of India’s deep urge and commitment to help its extended family in the southern neighbourhood, reported True Ceylon.

Given its long history of friendship and bonhomie with the southern neighbour, India was the first Sri Lankan bilateral creditor to support its debt restructuring efforts by providing assurance to the IMF in January 2023 itself while the other creditors took longer times.

It is primarily because the ties between India and Sri Lanka are not merely strategic and economic, but the thread of affinity between them runs from uninterrupted historical and cultural ties since ages, reported True Ceylon.

India has been a key part of Sri Lanka’s support structure during the adverse times as expected from a reliable development partner and a time-tested friend. This is the reason why India also appealed to the IMF to clear the bailout for the crisis-hit country well within a time frame before the situation worsened beyond repair, reported True Ceylon.

President Ranil Wickremesinghe announced the clearance of the first tranche of EFF of the IMF worth USD 330 million to Sri Lanka on March 21 and the country received it on March 22.

Charting out the future course, Wickremesinghe pointed out that with the receipt of the IMF bailout, the country would now be able to access about an additional USD 7 billion from international institutions including the IMF. Besides the country would also be able to overcome the current shortage of foreign exchange and other essential imports to buoy its sinking growth and curb spiralling inflation, reported True Ceylon.

However, the future path of Sri Lanka would not be without challenges. The country would need to trample the road towards economic stability, sustainability and recovery with care, caution and strong determination. The foundation of these goals would crucially depend on political stability and consensus.

As a starting point, Sri Lanka would need to devise effective policies to curb inflation, remove shortages of essential goods, stimulate economic growth and recovery and convince global investors about Sri Lanka’s investment environment and capacity to replay. This is vital to Sri Lanka’s efforts to resuscitate the sliding economy.

The foreign exchange crisis and skyrocketing inflation confronting the country may be overcome for a while, but the medium and long-term revival and stability of the Sri Lankan economy would require bold decisions and firm resolve to carry out economic stabilization and structural reforms measures, reported True Ceylon.

IMF in its report on Sri Lanka, released on March 20, 2023, said that “risks to the IMF programme implementation are exceptionally high.” This remark from the multilateral institution points out that the country should have a contingency plan as well while it meets the IMF conditionality.

The IMF conditionality is not easy to implement, but if implemented properly, experts and observers opine that the country could again come on the path of sustained economic growth with a fair amount of stability. According to the IMF, the objectives of EFF supported programme are to restore macroeconomic stability and debt sustainability, safeguard financial stability, and step-up structural reforms to unlock Sri Lanka’s growth potential.

Sri Lanka needs to mitigate the adverse effects of economic reforms on the poor and vulnerable to succeed in implementing the EFF programme without social tension.

In this regard, Sri Lanka could refer to a textbook case of India in 1991 and afterwards how the latter successfully transformed a crisis into an opportunity making India today a ‘bright spot’ in the comity of world economies, reported True Ceylon.__Business Standard