{"id":33849,"date":"2023-03-21T02:24:31","date_gmt":"2023-03-20T20:54:31","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=33849"},"modified":"2025-04-20T02:11:16","modified_gmt":"2025-04-19T20:41:16","slug":"imf-approves-3-bn-bailout-for-sri-lanka","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/imf-approves-3-bn-bailout-for-sri-lanka\/","title":{"rendered":"IMF approves $3-bn bailout for Sri Lanka"},"content":{"rendered":"<h3><strong>What\u2019s in today\u2019s article?<\/strong><\/h3>\n<ul>\n<li><strong>Why in News?<\/strong><\/li>\n<li><strong>Brief Background on Economic Crisis in Sri Lanka<\/strong><\/li>\n<li><strong>Implications of the Economic Crisis in Sri Lanka<\/strong><\/li>\n<li><strong>IMF Bailout<\/strong><\/li>\n<li><strong>What is Extended Fund Facility?<\/strong><\/li>\n<li><strong>Has India availed the EFF in the past?<\/strong><\/li>\n<li><strong>News Summary<\/strong><\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<h2><strong>Why in News?<\/strong><\/h2>\n<ul>\n<li>The International Monetary Fund (IMF) cleared a $3 billion-Extended Fund Facility (EFF) for Sri Lanka.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Brief Background on Economic Crisis in Sri Lanka<\/strong><\/h2>\n<p>Image Caption: Economic Crisis in Sri Lanka<\/p>\n<ul>\n<li>Sri Lanka is currently in an economic and political crisis of mass proportions, recently culminating in a default on its debt payments.<\/li>\n<li>There are several reasons for this crisis and the economic turmoil has sparked mass protests and violence across the country. Following is a brief timeline of events which eventually led to the crisis \u2013<\/li>\n<li><strong>2009 \u2013<\/strong>\n<ul>\n<li>In 2009, a decades-long civil war in the country ended and the government\u2019s focus turned inward towards domestic production.<\/li>\n<li>However, <strong>a stress on local production and sales, instead of exports, increased the reliance on foreign goods<\/strong>.<\/li>\n<\/ul>\n<\/li>\n<li><strong>2019 \u2013<\/strong>\n<ul>\n<li>Unprompted cuts were introduced on income tax in 2019, leading to <strong>significant losses in government revenue<\/strong>, draining an already cash-strapped country.<\/li>\n<\/ul>\n<\/li>\n<li><strong>2021 \u2013<\/strong>\n<ul>\n<li>The Sri Lankan government introduced a ban on foreign-made chemical fertilizers. The ban was meant to counter the depletion of the country\u2019s foreign currency reserves.<\/li>\n<li>However, <strong>with only local, organic fertilizers available to farmers, a massive crop failure occurred and Sri Lankans were subsequently forced to rely even more heavily on imports<\/strong>, further depleting reserves.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Implications of the Economic Crisis in Sri Lanka<\/strong><\/h2>\n<ul>\n<li>Sri Lanka is home to more than 22 million people who are rapidly losing the ability to purchase everyday goods.<\/li>\n<li>The <strong>government owes $51 billion<\/strong> and is unable to make interest payments on its loans, let alone repay the amount borrowed.<\/li>\n<li>And its currency had collapsed by 80%, making imports more expensive and worsening inflation that is already out of control, with food costs rising 57% by May, 2022.<\/li>\n<li>Due to power outages meant to save energy and fuel, schools were shut down.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>IMF Bailout<\/strong><\/h2>\n<p>In September 2022, International Monetary Fund (IMF) and the Sri Lankan authorities reached a staff-level agreement to support Sri Lanka&#8217;s economic policies with a 48-month arrangement under the <strong>Extended Fund Facility (EFF)<\/strong> of about <strong>$3 billion<\/strong>.<\/p>\n<p>The objectives of Sri Lanka\u2019s new Fund-supported program are \u2013<\/p>\n<p><i>To restore macroeconomic stability and debt sustainability<\/i>,<\/p>\n<p><i>Stepping up structural reforms to address corruption vulnerabilities and unlock Sri Lanka\u2019s growth potential<\/i>.<\/p>\n<p>&nbsp;<\/p>\n<figure class=\"media\">\n<div data-oembed-url=\"https:\/\/www.youtube.com\/watch?v=7YEcUHGmA7Q\">\n<div><iframe src=\"https:\/\/www.youtube.com\/embed\/7YEcUHGmA7Q\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/div>\n<\/div>\n<\/figure>\n<h2>\u00a0<\/h2>\n<h2><strong>What is Extended Fund Facility?<\/strong><\/h2>\n<ul>\n<li>The Extended Fund Facility (EFF) is a lending facility of the Fund of the IMF and it was established in <strong>1974<\/strong>.<\/li>\n<li>The EFF <i><strong>provides financial assistance to countries facing serious medium-term balance of payments (BoP) problems<\/strong><\/i> because of structural weaknesses that require time to address.<\/li>\n<li>To help countries implement medium-term structural reforms, the <i><strong>EFF offers longer program engagement and a longer repayment period<\/strong><\/i>.<\/li>\n<li><strong>Eligibility \u2013<\/strong>\n<ul>\n<li>All member countries of IMF facing actual or potential external financing needs are eligible.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Conditions \u2013<\/strong>\n<ul>\n<li>Countries\u2019 policy commitments are expected to focus on structural reforms to address institutional or economic weaknesses, in addition to policies to maintain macroeconomic stability.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Duration \u2013<\/strong>\n<ul>\n<li>Typically approved for periods of 3 years, but may be approved for periods as long as 4 years to implement deep and sustained structural reforms.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Repayment \u2013<\/strong>\n<ul>\n<li>Over 4\u00bd\u201310 years in 12 equal semi-annual instalments.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Has India availed the EFF in the past?<\/strong><\/h2>\n<ul>\n<li>In 1980, India had borrowed <strong>$ 3.9 billion<\/strong> \u2014 a record amount then \u2014 under an extended fund facility from the IMF.<\/li>\n<li>However, the then Government did not avail of the full amount as the economy recovered.<\/li>\n<li>During the <strong>1991 economic crisis<\/strong>, India borrowed <strong>$ 2.2 billion<\/strong> from the IMF under two standby arrangements, between 1991 and 1993.<\/li>\n<li>A little over a decade later, <i><strong>India emerged as a creditor to the Fund<\/strong><\/i> \u2014 as its economy recovered and its balance of payments position improved substantially.<\/li>\n<\/ul>\n<p>\u00b7 \u00a0 \u00a0<\/p>\n<h2><strong>News Summary<\/strong><\/h2>\n<ul>\n<li>The International Monetary Fund (IMF) has signed an arrangement to provide External Fund Facility (EFF) of $3 billion for Sri Lanka.<\/li>\n<li>The IMF signed the arrangement after receiving requisite financial assurances to restore debt sustainability from the country\u2019s biggest bilateral donors \u2014 <strong>China<\/strong>, <strong>India<\/strong> and <strong>Japan<\/strong>.<\/li>\n<li>The <i><strong>assurance from bilateral donors that they would support Sri Lanka\u2019s debt restructuring was a precondition that Sri Lanka had to meet to unlock the arrangement with the IMF<\/strong><\/i>.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<hr \/>\n<h3><strong>Q1) What do you mean by Balance of Payments (BoP)?<\/strong><\/h3>\n<p>\u00a0The balance of payments (BOP) is <strong>the record of all international financial transactions made by the residents of a country<\/strong>. There are three main categories of the BOP: the current account, the capital account, and the financial account.<\/p>\n<p>&nbsp;<\/p>\n<h3><strong>Q2)<\/strong> <strong>When was IMF established?<\/strong><\/h3>\n<p>The IMF and the World Bank were created in <strong>July 1944<\/strong> at an international conference in the United States (in Bretton Woods, New Hampshire) that established a framework for economic cooperation aimed at creating a more stable and prosperous global economy.<\/p>\n<p>&nbsp;<\/p>\n<hr \/>\n<p><strong>Source:\u00a0<\/strong><a href=\"https:\/\/www.thehindu.com\/news\/international\/imf-announces-sri-lanka-programme-aimed-at-islands-economic-recovery\/article66644843.ece\" target=\"_blank\" rel=\"nofollow noopener\"><u>IMF approves $3-billion bailout for Sri Lanka; tackling corruption a key condition<\/u><\/a>\u00a0|\u00a0<a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-global\/imf-bailout-for-sri-lanka-what-happens-now-8510598\/\" target=\"_blank\" rel=\"nofollow noopener\"><u>Indian Express<\/u><\/a>\u00a0 \u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The International Monetary Fund cleared a $3 billion-Extended Fund Facility for Sri Lanka.<\/p>\n","protected":false},"author":5,"featured_media":33850,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-33849","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/33849","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=33849"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/33849\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/33850"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=33849"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=33849"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=33849"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}