IMF $2.9bn deal to aid Sri Lanka

Recently, the International Monetary Fund (IMF) has come forward to help Sri Lanka, which is facing a historic economic crisis. The IMF has announced a loan of $ 2.9 billion to Sri Lanka.

Key Points

  • The aid aims to restore macroeconomic stability and creditworthiness in Sri Lanka as well as protect financial stability.
  • The IMF and Sri Lankan authorities have agreed on a 48-month loan under the Extended Funds Facility (EFF) of about $2.9 billion to help stabilise the economy and boost growth.
  • The agreement between Sri Lanka and the IMF is only preliminary, and has to be approved by the IMF management and its executive board. It will also go through only if Sri Lankan authorities carry out previously agreed measures which include additional funding from multilateral partners and debt relief from Sri Lankan lenders to help ensure debt affordability and bridge the financial gap.
  • Starting with one of the lowest revenue levels in the world, this loan program will implement major tax reforms. These reforms include making personal income tax more progressive and expanding the tax base for corporate income tax and VAT.

International Monetary Fund (IMF)

IMF is an international financial institution. It is headquartered in Washington, D.C. The institution comprises of 190 countries. It is working to foster global monetary cooperation, facilitate international trade, secure financial stability, promote sustainable economic growth, promote high employment and reduce poverty worldwide. It was created in 1944 but started working formally on December 27, 1945. It came into existence with 29 member countries.

Why was IMF created?

The IMF was originally created as a part of the Bretton Woods system in 1944. During the Great Depression, countries raised the barriers to trade in order to improve their failing economies. This resulted into devaluation of national currencies and decline in world trade. Breakdown in international monetary cooperation created a need for oversight. Thus, representatives of 45 governments met at the Bretton Woods Conference, in the United States, to discuss a framework for an international economic cooperation and to rebuild Europe.

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