IMF team due in Colombo on Wednesday

An International Monetary Fund (IMF) technical team is arriving in Colombo this Wednesday to assess the total external and internal debt of the bankrupt nation before the exercise of restructuring of debt begins after a discussion with the World Bank next month in Washington. The IMF team will be in Sri Lanka from August 24 to August 31.

It is understood that the total external and internal debt of the Island Nation is around USD 97 billion, out of which more than USD 51 billion is owed to foreign creditor nations like Japan, China, India, and Asian Development Bank. While the loan package sought by President Ranil Wickremesinghe is around USD 2 to 3 billion, the disbursement from the Bretton Woods Institution is not coming immediately as the Fund is looking for restructuring both domestic and external debt rather than be sufficed with the latter.

According to officials based in Washington, only after the total debt of Sri Lanka is assessed, the creditor nations will be sought for assurances that debt sustainability will be restored. However, this political play will come later after the issue is discussed with the multilateral lending institutions.

Given that the total debt of Sri Lanka is more than its GDP and its forex reserves have dwindled to USD 1.82 billion in July 2022, it will take a long time for Sri Lanka to come out of the current economic crisis as global tourist travel (Colombo's main forex earner) continues to be hit by the coronavirus in different variant forms. The Sri Lankan economic woes have been compounded by serious mismanagement by the Rajapaksa regime, of which the present President was a part, by going in for economically unviable white elephant projects through high interest loans from Chinese banks. As of now the country owes more than 10 percent of its external debt to China for being part of the Belt Road Initiative.

The misgovernance and economic profligacy have led to ordinary Sri Lankan battling food and fuel shortages for months amid double-digit inflation and devalued currency. This led to mass protests in July forcing the then President Gotabaya Rajapaksa to flee the country, leaving his China-friendly brother Mahinda Rajapaksa behind in Sri Lanka under the protection of the security forces.

Given the state of polity in Sri Lanka with politicians fending for themselves and the Rajapaksa brothers still playing behind the scenes for President Wickremesinghe, the economic situation in Sri Lanka is expected to go worse before it turns for the better.