by Amal JAYASINGHE

Sri Lanka’s new leader backed a controversial IMF bailout on Thursday, marking a reversal from his election promise to renegotiate the deal secured by his predecessor.

Left-wing President Anura Kumara Dissanayake, who tightened his grip on power last week after securing a large majority in the legislature following his own victory in September, has pledged to maintain the IMF program.

Sri Lanka turned to the IMF for a bailout package after the country defaulted on its $46 billion foreign debt in April 2022, during an unprecedented economic crisis.

A shortage of foreign currency that left the country unable to finance even the most essential imports of food and fuel led to months of street protests and forced then-President Gotabaya Rajapaksa to resign.

The $2.9 billion loan secured early last year forced Colombo to sharply raise taxes, scrap generous energy subsidies and agree to restructure more than 50 loss-making state companies.

Dissanayake’s National People’s Power party said it disagreed with the International Monetary Fund’s debt assessment and would renegotiate the bailout program.

But in his first speech to the new parliament, where his party enjoys a two-thirds majority, Dissanayake said the economic recovery was too fragile to take risks.

“The economy is in such a state that it cannot withstand the slightest shock… there is no room for error,” he declared, ruling out any negotiations with the IMF or creditors.

“This is not the time to discuss whether the terms are good or bad, whether the deal is favorable to us or not… The process lasted about two years and we cannot start all over again,” he said .

The delayed third review of the four-year loan program could be concluded by this weekend, with the Finance Ministry holding talks with a visiting IMF delegation in Colombo, he added.

Sri Lanka is awaiting the next tranche of around $330 million after speedy approval from the international lender of last resort’s board.

Dissanayake’s caretaker cabinet last month approved a controversial $14.7 billion restructuring of foreign trade credits tentatively agreed to by his predecessor Ranil Wickremesinghe.

Debt restructuring is a key IMF requirement to rebuild the island’s economy, which suffered its worst crisis in 2022, contracting by 7.8 percent.

Discontent with mainstream politicians being held responsible for the economic collapse was a key driver of Dissanayake’s electoral success.

In June, the government reached an agreement with its bilateral lenders to restructure its official credit amounting to $6 billion, but formal agreements have not yet been signed.

Under the deal announced on September 19, private creditors holding more than half of the South Asian country’s international sovereign bonds and foreign commercial loans agreed to a 27% reduction on their loans.

They also agreed to an additional 11 percent reduction in the interest owed to them. International sovereign bonds account for $12.5 billion and the balance of $2.2 billion is owed to the China Development Bank.