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Sri Lanka meets with US and IMF heads as talks over bailout continue

Sri Lanka’s finance ministry confirmed that it had met with officials from the US State Department, USAID and senior International Monetary Fund (IMF) figures, with talks continuing over an emergency bailout loan for Colombo as anti-government protests rumble on.

Sri Lankan minister of Finance Ali Sabry alongside Indian Finance Minister Nirmala Sitharaman made requests for emergency financial assistance in an effort to combat Sri Lanka’s debt crisis. However the IMF has reportedly made clear that any bailout deal would require "adequate assurances" that the country's debt could be put on a sustainable path.

Sabry met with the managing director of the IMF Kristalina Georgieva at the IMF headquarters in Washington DC early this week. He also met with the US Assistant Secretary

Bureau of South and Central Asian Affairs Donald Lu, Chief of the Economic Unit John MC Daniel along with the USAID Deputy Assistant Administrator Anjali Kaur, and USAID International Cooperation Specialist Sanjay R Iyer.

The meetings come amidst a deepening economic crisis that has destabilized the island. Sri Lanka is currently seeking up to US$4bn in assistance in order to pay creditors and import basic goods.

A press release from the Ministry of Finance states that Sabry “has made a request for a rapid financing instrument (RFI) with the IMF.” An RFI is an emergency loan with few conditions typically granted to a nation that has urgent financing needs.

In addition to an RFI, Sabry has also requested to expedite a request for an extended fund facility (EFF). Whilst allowing for longer repayment periods, an EFF also requires that the borrower agrees to revenue and deficit targets outlined by the creditor. Essentially, an EFF would necessitate structural reforms.

Former World Bank economist Shanta Devarajan advised that it is essential to protect the poor whilst implementing debt restructuring programs that will result in cuts to welfare, stating “if you want to introduce austerity in the middle of that situation, you have to manage it very carefully”.

The statement put out by the Ministry of Finance also highlights that Sitharaman has assured Sabry of “India’s commitment to strengthen the development of the economy in Sri Lanka and building stronger bonds between the two nations as they move forward together.” In addition, to support during IMF deliberations, Sri Lanka has also requested a US$1.5bn line of credit from India.

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