Sri Lanka's Government Moves Forward with IMF Debt Relief Agreement

Sri Lanka's newly formed government has decided to accept a controversial debt relief agreement with the International Monetary Fund (IMF) without modifications. This decision follows the commitments made by the previous administration led by Ranil Wickremesinghe during a severe economic crisis. The Finance Ministry in Colombo announced this development, although parliamentary approval is still required. Since the new president, Kumara Dissanayaka, has dissolved the parliament and called for early elections on November 14, a vote will not occur for several weeks.

The agreement with the IMF imposes stringent austerity measures on Sri Lanka in exchange for financial assistance. Dissanayaka, affiliated with a leftist party, initially sought to negotiate better terms but ultimately accepted the existing proposal after discussions with an IMF delegation. The country’s economy contracted by 7.8% in 2022, leading to an increase in external debt to $46 billion.

In June 2024, the prior government reached a restructuring agreement with bilateral creditors amounting to $6 billion. Just two days before his removal, Wickremesinghe announced a debt reduction agreement with private creditors, which included a 27% cut in debt and an 11% waiver on interest claims. In return, Sri Lanka must stabilize its economy through rigorous austerity measures. The new government's acceptance of this agreement signals a continuation of strict fiscal policies as the nation grapples with its ongoing economic challenges.