The IMF rescue package for Sri Lanka could mark the end of the country’s biggest economic crisis, but much of the hard work still needs to be done due to the country’s unstable political situation and the need to secure debt relief from rivalling countries China, India, and Japan.
President Ranil Wickremesinghe is aware that many puzzle pieces must fit together for the IMF $2.9 billion lifeline to materialise. Spending reductions, tax increases, and debt write-downs are a standard recipe for bankrupt nations, but crisis veterans say there are certain particularly challenging factors in this situation.
Wickremesinghe, who is seen by many to be of the same political ilk and who faces a brittle opposition, must nevertheless be accepted by the impoverished populace that drove former President Gotabaya Rajapaksa from his home in July.
Because of the complexity of the country’s borrowings, estimates of their sum range from $85 billion to well over $100 billion. Beijing, New Delhi, Tokyo, multilaterals, and international asset managers must all bear losses in order to bring it to a sustainable level.
Charles Robertson, chief economist at Renaissance Capital, has been following emerging market crises for decades and called this “one of the largest catastrophes I’ve ever seen.”