Sri Lanka’s new left-wing government is now accepting without compromise the controversial agreement with the International Monetary Fund (IMF) to restructure the country’s debt. The Finance Ministry in Colombo announced on Saturday that the agreement would be implemented as promised by the previous government. Now the Sri Lankan parliament still has to give its consent. Since the new head of state Kumara Dissanayaka has dissolved the people’s representation and scheduled early elections for November 14th, it will still be a few weeks before a vote is reached.
Under interim President Ranil Wickremesinghe, who has been in office since 2022, Sri Lanka, in view of a severe economic crisis, reached an agreement with the IMF that imposed strict austerity measures on the South Asian island state in return for financial aid. The new Sri Lankan President Dissanayaka, who heads a Marxist party, wanted to negotiate better conditions for his country. After two days of talks with an IMF delegation in Colombo, his government abandoned the plan.
Sri Lanka’s economy shrank by 7.8 percent in 2022, and the country’s foreign debt grew to 46 billion dollars (41.8 billion euros). In June 2024, the then-government reached an agreement with its bilateral lenders to restructure $6 billion in loans.
It was only on September 19, just two days before he was voted out, that Wickremesinghe announced a debt relief agreement with international debtors and the Chinese Development Bank. Private lenders, which hold more than half of Sri Lanka’s government bonds and other loans abroad, agreed to reduce debt by 27 percent and waive 11 percent of their interest charges. In return, Sri Lanka must stabilize its economy with strict austerity measures.
yb/kas
