Overview of Sri Lanka’s Economic Crisis
Sri Lanka has been facing its worst economic crisis in 75 years, marked by political instability, rising inflation, and mounting debt. This article provides a timeline of key developments in the country’s economic crisis and the measures taken to address it.
IMF Approves $3-Billion Bailout
On March 20, 2023, the International Monetary Fund (IMF) approved a nearly $3-billion bailout for Sri Lanka, which could help the country unlock up to $7 billion more from other lenders such as the World Bank and the Asian Development Bank. The decision will allow an immediate disbursement of about $333 million.
Timeline of Key Developments
2022
- March 31: Demonstrators march to President Gotabaya Rajapaksa’s private residence to protest over worsening economic conditions.
- May 9: Prime Minister Mahinda Rajapaksa, the president’s elder brother, resigns following widespread clashes between pro- and anti-government protesters. Countrywide violence leaves nine dead and about 300 injured.
- May 18: Sri Lanka falls into default after a 30-day grace period on a $78-million coupon payment expires.
- July 13: After protesters storm his office and residence, President Gotabaya Rajapaksa flees Sri Lanka, initially going to the Maldives before moving on to Singapore.
- July 15: Parliament accepts Gotabaya Rajapaksa’s resignation. Ranil Wickremesinghe, a six-time prime minister, is sworn in as acting president.
- July 20: Sri Lankan lawmakers vote in Wickremesinghe as the new president.
- August 9: The country’s power regulator approves a 75% hike in power tariffs.
- September 1: Sri Lanka reaches a preliminary agreement with the IMF for a loan of about $2.9 billion.
- November 14: Sri Lanka’s budget lays down several measures, including reducing the government’s deficit in its efforts to secure the IMF bailout.
2023
- January 17: India tells the IMF that it will support Sri Lanka’s debt restructuring plan.
- January 24: The Export-Import Bank of China offers Sri Lanka a two-year moratorium on its debt and says it would support the country’s efforts to secure the IMF loan. However, a Sri Lankan source says it is not enough to secure an IMF deal.
- February 7: The Paris Club of creditors gives financing assurances to support the IMF’s approval of an extended fund facility for Sri Lanka.
- February 8: Sri Lanka’s economy is expected to grow again from the end of this year, and the government hopes the country will emerge from an economic crisis by 2026. However, protests erupt over a rise of up to 36% in income taxes amid high inflation.
- February 16: The country raises electricity prices by 66%.
- February 21: Government data shows Sri Lanka’s national consumer price index eased year-on-year to 53.2% in January, after a 59.2% rise in December.
- March 8: The Export-Import Bank of China tells Sri Lanka it will try to finalize in the months ahead how it treats debt owed by the crisis-hit nation. It also reiterated a moratorium for debt due in 2022 and 2023.
- March 20: The IMF approves a nearly $3-billion bailout for Sri Lanka.
The approval of the IMF bailout is a significant step towards stabilizing Sri Lanka’s economy. However, the country still faces many challenges, including high inflation and mounting debt. The government will need to implement effective policies and reforms to ensure sustainable economic growth and recovery.