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Sri Lanka: IMF Talks to Restart In August

Image credit: The Hindu

Here are the key facts of this story, as agreed upon by Al Jazeera, NBC, FT, DW, Reuters, and Hindu.

  • On Wed., Sri Lanka’s recently elected Pres. Ranil Wickremesinghe said bailout talks with the International Monetary Fund (IMF) will restart this month as he urged lawmakers to form a national unity government to address the nation’s economic crisis.
  • Colombo expects to reach a deal with the IMF for a four-year program in which it would receive up to $3B from the financial institution, while it wraps up a plan to reorganize foreign debt, including around $12B to bondholders.
  • Wickremesinghe, who was PM until July, stated that political turmoil, including the resignation of former Pres. Rajapaksa, delayed negotiations with the fund.
  • This comes as the World Bank announced it wouldn’t offer funding to Sri Lanka until reforms that address the structural causes of the crisis are enacted. The country defaulted on more than $50B in foreign debt in April.
  • Wickremesinghe also announced the creation of a long-term economic plan to create a budget surplus in 2025 and reduce public debt from 140% of the nation’s GDP to less than 100% in 10 years.
  • Despite these plans, Wickremesinghe said he believes shortages and difficulties will continue at least until the end of 2022.

And these are the key narratives that have emerged for this story:

  • Anti-China narrative as provided by The Hill: Sri Lanka’s crisis is a product of Chinese foreign policy, specifically its practice of “debt-trap diplomacy.” China offers to build sparkling new infrastructure based on unsustainable amounts of debt, then host countries default and China gets a new link in its “Belt and Road Initiative.”
  • Pro-China narrative as provided by The Diplomat: Chinese “debt trap” accusations are a myth, given only 10% of the nation’s debt is owed to the PRC. Sri Lanka’s debt crisis is the result of Western meddling. The pandemic and some ill-timed policies have fueled the crisis, but it was engendered when the country acceded to the neoliberal path promoted by the West through undemocratic institutions that impose impossible conditions on developing countries.
  • Narrative C as provided by Economy Next: The only ones responsible for Sri Lanka’s situation are the entrenched political elite. Prior to Sri Lanka injecting liquidity into its economy amid the pandemic, the IMF had warned the country its debt was unsustainable and proposed measures to solve the problem in a five-year timeframe. However, Sri Lankan leaders refused to restructure their debt, claiming that the situation was manageable.

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