Sri Lanka’s reluctance to tap IMF helped push it into an economic abyss

Protestors shout slogans during a protest against Sri Lanka's President Gotabaya Rajapaksa in front of the Presidential Secretariat amid the country's economic crisis, in Colombo, Sri Lanka, April 9, 2022. REUTERS/ Dinuka Liyanawatte

On Monday, Sri Lanka will begin talks with the International Monetary Fund for a loan program, even as it seeks help from other countries, including neighboring India, and China.Economic mismanagement by successive governments weakened Sri Lanka's public finances, leaving its national expenditure in excess of its income, and the production of tradable goods and services at an inadequate level.

Rating agencies, concerned about government finances and its inability to repay large foreign debt, downgraded Sri Lanka's credit ratings from 2020 onwards, eventually locking the country out of international financial markets. J.P. Morgan analysts estimate the country's gross debt servicing would amount to $7 billion this year, with the current account deficit coming in around $3 billion.Faced with a rapidly deteriorating economic environment, the Rajapaksa government chose to wait, instead of moving quickly and seeking help from the IMF and other sources.

But, aware of the brewing crisis, the government did seek help from countries, including India and China. Last December, the then finance minister traveled to New Delhi to arrange $1.9 billion in credit lines and swaps from India.

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