US tariffs threaten troubled Sri Lanka’s recovery: IMF
The IMF cautioned Friday that resuming severe US tariffs would jeopardize Sri Lanka’s recovery from its worst economic catastrophe, which resulted in a sovereign default and the overthrow of a president.
Nearly 25% of Sri Lanka’s $12 billion in merchandise exports go to the US, making it the country’s biggest single market. The small South Asian country has a significant advantage in the trade balance.
Washington put the island nation on hold for 90 days Thursday after imposing a 44 percent “reciprocal tariff” on it.
Instead of retaliating, Sri Lanka has urged Washington to engage in talks.
“The recent external shock and evolving developments are creating uncertainty for the Sri Lankan economy, which is still recovering from its own economic crisis,” the IMF said following talks with local officials.
It noted that more time was needed to assess the full impact on the IMF-supported bailout programme Sri Lanka entered into in early 2023.
Sri Lanka secured a $2.9 billion, four-year loan from the IMF after running out of foreign exchange to finance even the most essential imports, such as food, fuel and medicines.
“Against ongoing global uncertainty, it remains important to continue rebuilding external buffers through reserves accumulation,” the IMF said.
Following its historic crisis in 2022, when the US announced tariffs, Sri Lanka reported its first complete year of economic growth.
After contracting by 2.3 percent in 2023, the economy grew by 5.4 percent in the last quarter of 2024, bringing the GDP growth for the entire calendar year to 5.0 percent.
In 2022, the island’s GDP dropped by 7.3 percent, marking its worst economic performance to date.
Early in 2022, Gotabaya Rajapaksa was overthrown by popular unrest following months of shortages.
His successor, Ranil Wickremesinghe, doubled taxes, cut subsidies, raised prices and went on to lose his re-election bid in September.
The leftist administration led by President Anura Kumara Dissanayake has maintained many of the austerity measures and has urged all parties to work out a negotiating strategy with Washington together.
The Colombo-based private economic policy think tank Verite Research urged Colombo to join others hard-hit nations “under the aegis of the WTO (World Trade Organization)and agree on a common response”, its head Nishan de Mel told AFP.
