On March 21, the International Monetary Fund (IMF) sanctioned a $3 billion bailout for crisis-stricken Sri Lanka under the programme to “reestablish macroeconomic stability and debt sustainability, financial stability, and stepping up structural reforms”.

The four-year extended plan under the IMF’s Extended Fund Facility (EFF), costing 2.286 billion Special Drawing Rights or $3 billion, will witness $330 million being disbursed immediately. The IMF said the disbursal would result in new external funding with the World Bank and the Asian Development Bank.

Sri Lankan Prime Minister Ranil Wickremesinghe thanked the IMF for sanctioning the request for the extended programme under the EFF.

The multilateral agency observed that its plan prioritised an “ambitious” fiscal union, robust social safety nets, fiscal institutional changes, and cost-recovery grounded energy pricing. Further, public debt sustainability had to be restored under debt restructuring.

A third pillar is recovering price stability and re-constructing reserves under a greater exchange rate to lift the inflation burden. Finally, policies safeguarding the financial sector can be vital in backing economic growth with structural reforms to address corruption vulnerabilities and improve growth.

However, the IMF noted that implementation risks of the programme are “exceptionally high” amid complex debt restructuring procedures, the unfavourable environment, elevated risks of high inflation, and the challenging domestic, political, and social situation.

In recent months, Sri Lanka’s debt vulnerability among other countries has been presented in the G20 discussions, with the Chair’s Summary and Outcome Document circulated at the end of the first meeting of the federation’s finance ministers and central bank governors in Bengaluru, calling for a “swift resolution”. China and India are Sri Lanka’s largest creditors in the world.