Sri Lanka stares at bankruptcy or redemption
The HinduAll eyes are on Sri Lanka as it endures its worst economic crisis since Independence. Defaulting, debt restructuring Sri Lanka’s strategy of defaulting on its external debt, timed less than a week before negotiations with the IMF in Washington, could not have come about without the Fund’s nod. There is no guarantee that an IMF agreement will lead to even financial stability, going by Sri Lanka’s past engagement as well as the volatility of financial markets today. Explained | Understanding the sovereign debt crisis in Sri Lanka The IMF Staff Report, that was made public in March 2022, outlines a number of recommendations likely to be entrenched in the upcoming agreement: revenue-based fiscal consolidation through increasing tax rates and energy pricing reforms; restoring debt sustainability; near-term monetary policy tightening towards inflation targeting; a market-determined and flexible exchange rate; and targeted social safety nets. Technocratic solutions During its postcolonial history, Sri Lanka has gone through 16 IMF agreements, most recently an Extended Fund Facility of U.S.$1.5 billion in June 2016.