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Austerity will bring political challenges in Sri Lanka

Wednesday, December 14, 2022

Significance

The government’s commitment to fiscal consolidation is aimed at pleasing the IMF, with which Sri Lanka recently reached a staff-level agreement on a four-year, USD2.9bn bailout. Colombo awaits approval of the deal by the Fund’s Executive Board.

Impacts

  • Sri Lanka is unlikely to receive the first tranche of IMF bailout funds this year but should do so within the first quarter of 2023.
  • Using force to break up protests could unleash a cycle of violence, hurting government attempts to convey an image of political stability.
  • The government will have to contend with shortfalls in revenue if the budget’s assumptions are not borne out.

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