Sri Lanka's Economy
The IMF Bailout and Debt Restructuring
How Sri Lanka secured a 2.9-billion-dollar IMF programme in 2023, restructured debts with China, India and bondholders, and began to recover.
Sri Lanka defaulted on its foreign debt in April 2022, its first default.
IMF programme
- In March 2023, the IMF approved a 2.9-billion-dollar programme.
- Conditions: tax increases, energy price reforms, central bank independence and anti-corruption measures.
Debt restructuring
- Sri Lanka negotiated with bilateral creditors, including China, India and Japan.
- It reached a deal with bondholders in 2024, with a haircut on the value of bonds.
Reforms
- Income taxes were raised.
- Electricity prices reflected costs.
- A new Central Bank Act (2023) strengthened independence.
Recovery
- Inflation fell to low single digits by 2024.
- Growth returned in 2024.
- Reserves rebuilt.
Pain
Higher taxes and costs squeezed households; poverty rose sharply during the crisis.
The tax bill
A Colombo professional sees her income tax rise sharply under IMF-backed reforms, reducing her take-home pay while prices stabilise.
Thinking defaults end a country's access to recovery
Sri Lanka recovered through restructuring and reforms.
Key takeaways
- Sri Lanka defaulted in April 2022.
- The IMF approved 2.9 billion dollars in March 2023.
- Debts were restructured with China, India, Japan and bondholders.
- Inflation fell and growth returned in 2024.
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