Sri Lanka on Wednesday received the first tranche of its $330 million bailout package from the International Monetary Fund (IMF). President Ranil Wickremesinghe informed Parliament about this. The IMF on Monday approved $ 3 billion as a rescue package for crisis-hit Sri Lanka. The package will be given to the government over a period of four years.

The IMF has approved the relief package after being satisfied that the current government of Sri Lanka has taken steps according to the conditions of the IMF. Wickremesinghe said his government officials would begin the next round of talks with bondholders and bilateral creditors in the third week of April. At the same time, Pakistan, another country stuck in crisis, is still waiting for IMF bailout.

Third bailout since 2009
This is the 17th IMF bailout for Sri Lanka. This is the third bailout since the end of the decades-long civil war in 2009. Senior IMF official Masahiro Nozaki said on Tuesday that unlike previous bailouts, this time the funds could also be used for government spending. The funds from the earlier bailouts were mainly used to shore up foreign exchange reserves.

On 18 May 2009, the Sri Lankan government formally declared the end of the 25-year civil war after taking control of the entire island and killing Velupillai Prabhakaran, the rebel leader of the Tamil Tigers. Sri Lankans celebrated in Colombo after the announcement.

Worst financial crisis since independence
Sri Lanka is grappling with its worst financial crisis since independence due to economic mismanagement and the COVID-19 pandemic. It has become acutely short of dollars for essential imports. The crisis has raised the cost of living to Sri Lankans. The income tax rate has reached 36%. Electricity tariffs have also seen a hike of up to 66%. In February, the inflation rate here was 53.6%.

How did Sri Lanka reach this situation?
Tourism is a major source of income for the people here. About 5 million Sri Lankans are directly dependent on tourism, while 2 million are indirectly linked to it. Tourism contributes more than 10% to Sri Lanka’s GDP. Sri Lanka gets about $ 5 billion (about 37 thousand crore rupees) foreign currency annually from tourism. This is the third major source of foreign exchange for the country.

The tourism sector had come to a standstill due to the Corona epidemic. Other economic activity was also affected. Higher government spending and tax cuts had also reduced the revenue. Apart from this, on 29 April 2021, the government had banned the import of fertilizers and pesticides and forced the farmers to do organic farming.

Many farmers did not know how to do farming without the use of fertilizers and pesticides. In such a situation, many people did not grow crops for fear of loss. This reduced exports and reduced foreign reserves. However, later the government took a U-turn from its decision. China also has a huge debt on Sri Lanka. A few years back, due to non-payment of loan, China had also occupied its Hambantota port.

Pak waiting for IMF approval
The debt burden on Pakistan is continuously increasing and inflation has reached close to 31%. Its foreign exchange reserves are on the verge of exhaustion. The Pakistan government is waiting for $1.1 billion fund from the IMF to deal with the economic crisis. Pakistan has fulfilled many conditions of the IMF, but so far the IMF has not approved the bailout package.