Economic Reforms in Sri Lanka: Overview of Recent Bills and IMF Approval

Sri Lanka Implements Economic Reforms to Stabilize Economy and Prevent Debt Crisis

In a bid to stabilize the economy and prevent another debt default crisis, the Sri Lankan government presented three economic reforms-related bills to the Parliament in May 2024. These bills, namely the Economic Transformation Bill, the Public Debt Management Bill, and the Public Financial Management Bill, are aimed at addressing key economic issues facing the country.

On 13 June 2024, the International Monetary Fund (IMF) approved a third tranche of the 14-month US$2.9 billion IMF Extended Fund Facility for Sri Lanka. This approval provides immediate access to US$336 million to support the country’s economic reforms. The IMF’s positive rating of the government’s economic stabilisation efforts is expected to boost confidence among foreign and local investors and trading partners.

Despite the IMF’s forecast of a modest economic growth rate of two per cent in 2024 and 2.7 per cent in 2025, Sri Lanka continues to grapple with high poverty levels, income inequality, and labour market challenges. Approximately 25.9 per cent of Sri Lankans were living below the poverty line in 2023.

The Economic Transformation Bill, proposed by the President, sets ambitious national economic targets, including achieving a five per cent GDP growth rate until 2027 and reducing unemployment to five per cent by 2025. The bill also aims to establish institutions to drive economic growth and competitiveness.

However, the proposed economic reforms have faced opposition and concerns from various quarters. The main opposition party and civil society organizations have raised issues regarding the constitutionality of the bills, the concentration of economic powers, and the lack of inclusivity in the drafting process.

In parallel, the government has also focused on debt restructuring efforts, aiming to reduce outstanding payments by negotiating with creditors and private investors. The successful restructuring of foreign debts is crucial for the government to continue its development activities and gain social legitimacy ahead of upcoming elections.

Overall, Sri Lanka’s economic reforms and debt restructuring initiatives are critical steps towards stabilizing the economy and ensuring sustainable growth. The success of these efforts will be closely watched by both domestic and international stakeholders as the country navigates its economic challenges.