Finance Minister Nirmala Sitharaman has urged the International Monetary Fund (IMF) and the World Bank (WB) to reclassify Sri Lanka as a low income country for the limited purpose of debt restructuring.
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- The Finance Minister made this suggestion during the Fund Bank meeting held in US recently.
- Though Sri Lanka was classified as a middle income country at the start of the pandemic, the nature of its economy and dip in national revenues due to the pandemic mean that it could possibly be categorised as a low income country and should be treated accordingly.
Debt Service Suspension Initiative (DSSI)
- At the start of the pandemic, the IMF and the WB worked together with the G20 countries to set up the Debt Service Suspension Initiative (DSSI).
- Established in May 2020, the DSSI helped countries concentrate their resources on fighting the pandemic and safeguarding the lives and livelihoods of millions of the most vulnerable people.
- 48 out of 73 eligible countries participated in the initiative before it expired at the end of December 2021.
- The eligible countries for the DSSI included nations that are part of the World Bank’s International Development Association (IDA) and all least developed countries as defined by the United Nations.
Common Framework for debt treatment beyond the DSSI
- In November 2021, the G20, the World Bank and the IMF came out with the ‘Common Framework for debt treatment beyond the DSSI’ (Common Framework) to support, in a structural manner, low income countries with unsustainable debt.
- A classification as a low income country would ease the process of restructuring Sri Lanka’s debt. Due to Sri Lanka’s dependence on the tourism sector, the shock to the country’s economy was largely exogenous in nature.
Least developed countries (LDCs) a
- Least developed countries (LDCs) are low-income countries confronting severe structural impediments to sustainable development.
- They are highly vulnerable to economic and environmental shocks and have low levels of human assets.
- There are currently 46 countries on the list of LDCs which is reviewed every three years by the Committee for Development (CDP).
- LDCs have exclusive access to certain international support measures in particular in the areas of development assistance and trade.
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