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Economy of Sri Lanka
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=== Debt and IMF assistance === During the years before 2016, the country's debt soared as it was developing its infrastructure to the point of near bankruptcy which required a [[bailout]] from the [[International Monetary Fund]] (IMF). "Without an IMF loan, Sri Lanka would have been in a precarious position" in May 2016, according to Krystal Tan, an Asia economist at Capital Economics, who added, "foreign exchange reserves only covered around 80 per cent of short-term external debt."<ref>{{Cite news |url=https://www.cnbc.com/2016/05/02/why-sri-lankas-economic-outlook-is-looking-less-rosy.html |title=Why Sri Lanka's economic outlook is looking less rosy |last=Shaffer |first=Leslie|date=2 May 2016 |publisher=CNBC |access-date=14 January 2017 |quote=While the government is aiming to raise its low revenue collection, partly through an increase in the value-added tax rate ... the country has a spotty record on tax collection.}}</ref> The IMF had agreed to provide a $1.5 billion bailout loan in April 2016 after Sri Lanka provided a set of criteria intended to improve its economy. By the fourth quarter of 2016, the debt was estimated to be $64.9 billion. Additional debt had been incurred in the past by state-owned organizations and this was said to be at least $9.5 billion. Since early 2015, domestic debt has increased by 12 per cent and external debt by 25 per cent.<ref>{{cite magazine |url=https://www.forbes.com/sites/wadeshepard/2016/09/30/sri-lankas-debt-crisis-is-so-bad-the-government-doesnt-even-know-how-much-money-it-owes/ |title=Sri Lanka's Debt Crisis Is So Bad The Government Doesn't Even Know How Much Money It Owes |last=Shepard |first=Wade |date=30 September 2016 |magazine=[[Forbes]] |access-date=14 January 2017 |quote='We still don't know the exact total debt number,' Sri Lanka's prime minister admitted to parliament earlier this month.}}</ref> In late 2016 the World Bank provided US$100 million in financing and the [[Japan International Cooperation Agency]] provided a US$100M loan, both intended to "provide budget financing and to support reforms in competitiveness, transparency, public sector and fiscal management", according to the World Bank. The bank also reported that the country's government had agreed that there was a need for reforms "in the areas of fiscal operations, competitiveness and governance" and if fully implemented, "these could help the country reach Upper Middle-Income status in the medium term" according to the bank.<ref>{{cite web |url=http://www.worldbank.org/en/news/feature/2016/10/27/sri-lanka-development-update |title=Sri Lanka Development Update |author=<!--Staff writer(s); no by-line.--> |date=27 October 2016 |publisher=The World Bank |access-date=14 January 2017 |quote=The report emphasizes the importance of adhering to the revenue-led fiscal consolidation path to create fiscal space for increased investment in human and physical capital and the provision of other public goods to sustain growth in the medium term. It also highlights the need for structural reforms to improve competitiveness and governance.}} </ref> In November 2016, the International Monetary Fund reported that it would disburse a higher amount than the US$150 million originally planned, a full US$162.6 million (SDR 119.894 million), to Sri Lanka. The agency's evaluation was cautiously optimistic about the future: "While inflation has abated, credit growth remains strong. The central bank indicates its readiness to tighten the monetary policy stance further if inflationary pressures resurge or credit growth persists. The authorities intend to continue building up reserves through outright purchases while allowing for greater exchange rate flexibility. The banking sector is currently well-capitalized. Steps are being taken to find a resolution mechanism for distressed financial institutions. Going forward, there is a need to strengthen the supervisory and regulatory framework, and identify and mitigate vulnerabilities in the financial sector, particularly with regard to non-banks and state-owned banks."<ref>{{cite web |url=https://www.imf.org/en/News/Articles/2016/11/18/PR16515-Sri-Lanka-IMF-Completes-First-Review-of-the-Extended-Arrangement-Under-the-EFF |title=IMF Completes First Review of the Extended Arrangement Under the EFF with Sri Lanka and Approves US$162.6 Million Disbursement |author=<!--Staff writer(s); no by-line.--> |date=18 November 2016 |publisher=IMF |access-date=14 January 2017 |quote=[IMF] completed the first review of Sri Lanka's economic performance under the program supported by a three-year extended arrangement under the Extended Fund Facility (EFF) arrangement.}}</ref> As part of the debt management program, the Sri Lankan government carried out several reforms which included the implementation of a new Inland Revenue Act as well as an automatic fuel pricing formula. Tax reforms also increased VAT rates and narrowed exemptions and the third review by the IMF noted that performance was on track regarding fiscal consolidation, revenue mobilization, monetary policy management, and reserves accumulation. In the fourth review in June 2018, the IMF claimed that "Sri Lanka has made important progress under its Fund-supported program", but stressed the need for further progress with revenue-based fiscal consolidation and a prudent monetary policy with sustained efforts to build up international reserves. In 2018 China extended a loan of $1.25 billion consisting of a below-market-rate syndicated loan and smaller Panda bond to bail out Sri Lanka.<ref>{{Cite web|url=https://www.imf.org/en/Publications/CR/Issues/2018/01/12/Sri-Lanka-Third-Review-under-the-Extended-Arrangement-under-the-Extended-Fund-Facility-and-45541|title=Sri Lanka : Third Review under the Extended Arrangement under the Extended Fund Facility and Request for Modification of Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Sri Lanka|website=IMF|language=en|access-date=2018-08-05}}</ref><ref>{{Cite news|url=https://www.imf.org/en/News/Articles/2018/06/01/pr18212-sri-lanka-imf-executive-board-concludes-2018-article-iv-consultation|title=IMF Executive Board Concludes 2018 Article IV Consultation and Completes Fourth Review under the Extended Arrangement Under the Extended Fund Facility with Sri Lanka, Approving US$ 252 Million Disbursement|work=IMF|access-date=2018-08-05|language=en}}</ref><ref>{{Cite web|url=https://economynext.com/China_on_track_to_bail_out_Sri_Lanka_with_US$1.25bn_in_2018-3-11431.html|title=China on track to bail out Sri Lanka with US$1.25bn in 2018|website=economynext.com|language=en|access-date=2018-08-05|archive-url=https://web.archive.org/web/20180805112826/https://economynext.com/China_on_track_to_bail_out_Sri_Lanka_with_US$1.25bn_in_2018-3-11431.html|archive-date=5 August 2018|url-status=dead}}</ref> In 2021, [[Bangladesh]] agreed to give Sri Lanka loans of at least $200 million from the foreign exchange reserves under a currency swap deal. The currency swap initiative was taken after Sri Lankan Prime Minister [[Mahinda Rajapaksa]]βs visit to Bangladesh to attend the joint celebrations of the golden jubilee of Bangladesh's independence and the birth centenary of [[Bangabandhu]].{{Citation needed|date=January 2022}} In December 2021, Sri Lanka announced that it would pay off a $251 million oil debt to [[Iran]] by sending $5 million worth of [[Ceylon tea]] every month.<ref>{{Cite news|date=2021-12-22|title=Sri Lanka plans to pay off Iran oil debt with tea|language=en-GB|work=BBC News|url=https://www.bbc.com/news/business-59753873|access-date=2022-01-22}}</ref><ref>{{Cite news|last=Ashworth|first=Louis|date=2021-12-22|title=Sri Lanka sends Ceylon tea to pay $250m Iranian oil bill|language=en-GB|work=[[The Daily Telegraph]]|url=https://www.telegraph.co.uk/business/2021/12/22/sri-lanka-sends-ceylon-tea-pay-250m-iranian-oil-bill/|access-date=2022-01-22|issn=0307-1235}}</ref> A strong and credible structural reform program is critical to avoid a prolonged crisis and address the (above) root causes of the current economic difficulties.<ref>{{Cite web |title=Economic reforms critical for Sri Lanka's recovery and sustainability-World Bank Country Director |url=https://www.worldbank.org/en/news/statement/2023/05/10/economic-reforms-critical-for-sri-lanka-s-recovery-and-sustainability-world-bank-country-director |access-date=2023-06-09 |website=World Bank |language=en}}</ref> As the country struggled, locked in the throes of the crisis, India extended multi-pronged assistance of about USD 4 billion in 2022 through multiple credit lines and currency support, in line with India's 'Neighborhood First' policy.[https://economictimes.indiatimes.com/news/india/you-saved-us-and-prevented-bloodbath-says-sri-lankas-speaker-abeywardena-thanks-india-for-help-during-financial-crisis/articleshow/101593953.cms?from=mdr]
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