Sri Lanka’s Interim Government Approves Agreement with IMF

Sri Lanka’s interim government has approved – despite criticism – an agreement with the International Monetary Fund (IMF) to restructure an estimated $14.7 billion in debt. The announcement was made by Sri Lanka’s Finance Ministry after talks with an IMF delegation and separately with Indian Foreign Minister Subrahmanyam Jaishankar.

“The Sri Lankan authorities reaffirm their support for the agreement on the terms of principle announced on September 19,” the Finance Ministry said in a note. The agreement was reached by the Asian country’s former president Ranil Wickremesinghe on the eve of last month’s presidential election, which was won by Anura Kumara Dissanayake, leader of the People’s Liberation Front (JVP), a communist and Marxist Leninist party highly critical of the IMF agreement. Sri Lanka’s government led by Harini Amarasuriya is working ahead of legislative elections scheduled for November 14.

Sri Lanka’s new leader tried to renegotiate the terms of the agreement, but after two days of talks with an IMF delegation rushed to Colombo, and then, after a confidential meeting on Friday, September 4 with India’s diplomatic chief, he changed his mind and said he would “uphold the terms set by his predecessor.”

India, along with China and Japan, is among the top three creditor nations of Sri Lanka, which agreed to restructure its debt after a severe economic and financial crisis in 2022, during which the national economy recorded a sharp 7.8 percent contraction. On July 3, 2024, the Sri Lankan government reached an agreement with creditors who granted Colombo’s request for a 28% principal reduction to bring the amount owed to China, Japan, and India to $6 billion, along with an 11% reduction in interest. Between 2024 and 2028, Sri Lanka will have to repay a fairly low interest rate of 3.75 percent. This should rise to 8.2% after 2028, but only if Sri Lanka’s gross domestic product exceeds 100 billion dollars a year.