Sri Lanka announces debt restructuring

Sri Lanka announces debt restructuring

On Friday, September 23, the government will present a debt restructuring plan to its creditors. In early September, the International Monetary Fund (IMF) agreed to bail out Sri Lanka, plunged into a serious economic crisis, to the tune of three billion dollars. But this IMF aid is conditional on the implementation of structural reforms.

For months, Sri Lanka has been sinking into the worst economic crisis it has known. Activity contracted by 8.5% over one year in the second quarter of 2022. Inflation reached a record level: nearly 64%. The population is short of fuel, electricity, medicine and basic necessities.

Since 2020, the coronavirus pandemic has devastated the tourism industry, the main source of foreign currency. As a result, foreign exchange reserves fell by more than 70%. Short of foreign currency, Sri Lanka can no longer pay for its imports. The country’s borrowings are estimated today at more than 80 billion dollars (just over 80 billion euros).

Compulsory reforms

To get out of it, the country has finalized a rescue plan of nearly three billion dollars (just over three billion euros) with the IMF. But to qualify for this aid, Sri Lanka must restructure its debt and implement structural reforms.

Among these reforms, an increase in budgetary revenues, with in particular an increase in VAT for all goods and services as well as the abolition of energy subsidies.

► Also to listen: How will Sri Lanka emerge from the crisis?