Sri Lanka agrees $3bn IMF bailout with unprecedented corruption clause

IMF says its package includes an assessment of revamping anti-corruption legislation

The International Monetary Fund (IMF) has approved a nearly $3bn bailout programme for Sri Lanka over four years to help salvage the country’s cash strapped economy.

Sri Lanka’s economy had collapsed last year and was in a state of economic meltdown not seen in 75 years after its debt surged and the country was unable to pay interests on loans.

The prices of basic necessities like food had spiked significantly and caused anger that led to mass protests and even a dramatic change in government.

“Sri Lanka has been facing tremendous economic and social challenges with a severe recession amid high inflation, depleted reserves, an unsustainable public debt, and heightened financial sector vulnerabilities,” IMF managing director Kristalina Georgieva said in a statement on Monday.

“Institutions and governance frameworks require deep reforms. For Sri Lanka to overcome the crisis, swift and timely implementation of the EFF-supported program with strong ownership for the reforms is critical.”

The IMF said about $333m will be disbursed immediately and the approval will also open up financial support from other institutions.

The multilateral agency said the package includes an assessment of revamping anti-corruption legislation in Sri Lanka.

“The ongoing efforts to tackle corruption should continue, including revamping anti-corruption legislation,” the IMF said.

“A more comprehensive anti-corruption reform agenda should be guided by the ongoing IMF governance diagnostic mission that conducts an assessment of Sri Lanka’s anti-corruption and governance framework. The authorities should step up growth-enhancing structural reforms with technical assistance support from development partners.”

The bailout package was welcomed by president Ranil Wickremesinghe’s office.

“From the very start, we committed to full transparency in all our discussions with financial institutions and with our creditors,” Mr Wickremesinghe said in a statement.

The 73-year-old had taken over as the head of the South Asian island nation last July.

“I express my gratitude to the IMF and our international partners for their support as we look to get the economy back on track for the long term through prudent fiscal management and our ambitious reform agenda.”

While the president has been able to curtail hours-long power cuts and queues for fuel that led to the downfall of his predecessor president Gotabaya Rajapaksa after mass protests, his government continues to remain unpopular.

“He’s ready to face the people’s anger in the short term, to ensure long-term stability and growth in the country,” Dinouk Colombage, Mr Wickremesinghe’s director of international affairs, was quoted as saying by Reuters.

Mr Wickremesinghe’s party – the United National Party – has just one seat in the 225-member parliament and is relying for support on Mr Rajapaksa’s party, the Sri Lanka Podujana Peramuna.

“There’s fuel now, there’s electricity, there’s fertiliser and by April, there will be enough rice and other foodstuff,” Mr Wickremesinghe said at an event in Colombo on Sunday, reported Reuters.

“We will no longer be declared a bankrupt nation, but a nation that can restructure its debts.”

The IMF has said that, with the bailout package, Sri Lanka’s government will have to make “swift progress” to restore debt sustainability.

“Having obtained specific and credible financing assurances from major official bilateral creditors, it is now important for the authorities and creditors to make swift progress towards restoring debt sustainability consistent with the IMF-supported program,” Ms Georgieva said.