COLOMBO, Sri Lanka (AP) — Sri Lanka’s Parliament voted Friday to support the implementation of a four-year International Monetary Fund program aimed at solving the country’s economic crisis and reducing its debt burden.
The proposal, introduced by President Ranil Wickremesinghe, who is also finance minister, was approved by a vote of 120 to 25 after a three-day debate.
The approval strengthens Wickremesinghe’s hands as he holds tough debt restructuring negotiations with Sri Lanka’s external creditors and privatizes state-run enterprises under the program, approved by the IMF last month, in which nearly $3 billion will be disbursed in stages.
It will also determine how the country’s economy will be managed in the coming years.
Sri Lanka announced last year that it was suspending repayment of its foreign loans because of a severe foreign currency crisis resulting from the impact of the COVID-19 pandemic, excessive borrowing by the government, and efforts by the central bank to stabilize the Sri Lankan rupee by using scarce foreign reserves.
In introducing the proposal in Parliament on Wednesday, Wickremesinghe said the government is seeking to reduce the country’s debt by $17 billion through restructuring. He said Parliament’s support is vital for stabilizing the economy and later restarting its expansion because a 3% growth rate needs to be maintained for the country’s GDP to return to its 2019 level by 2028.
Wickremesinghe said the government’s debt, both local and foreign, totaled $83.6 billion when he took over as president last July.
He said loan restructuring talks will begin with India together with the Paris Club, a group of major creditor nations, and separately with China. It may be necessary to restructure loans obtained locally with proper safeguards for banks and employees’ provident funds from which the government has borrowed, he said.
Debt restructuring can take various forms, including bailouts, renegotiating terms of loans and writing off or reducing the amount owed for some loans.
Sri Lanka’s economic crisis, the worst in its history, caused severe shortages of food, medicine, fuel, cooking gas and electricity last year. That led to massive street protests that forced then-President Gotabaya Rajapaksa to flee the country and resign.
The economy has shown signs of improvement since Wickremesinghe took over as president last July. Shortages have been alleviated, power cuts have ended and the Sri Lankan rupee has begun to strengthen.