Sri Lanka’s economy is suffering both internally and externally. Internally, a large budget gap continued to exist due to the severe deficit between Government revenue and expenditure while externally a wide gap between imports and exports has been created and the trade deficit has been detrimental to the country for a prolonged period of time.
The failure to address the issues took the country down a path of destruction and International Monetary Fund (IMF) support was sought in order to recover and rebuild the country.
After nearly a year and a lengthy process Sri Lanka managed to secure the aid.
But will this loan help Sri Lanka recover? The Sunday Observer sought the opinions of several economists on the matter.
IMF financial aid should be utilised through sound financial discipline and proper management. Minister of Mass Media, Transport and Highways -Dr. Bandula Gunawardena.
“Sri Lanka has been plagued by the drop in Government revenue over the years leading to an increased budget deficit. The economy also suffered due to the widening trade deficit. If Sri Lanka is to escape these issues we must implement economic reforms immediately.
Loss making public ventures must be restructured. Some see the tightened tax policy and the sale of State-Owned Enterprises as a mistake. But the Government will not be able to strengthen the areas of welfare, economic development and national security without an increase in revenue. Therefore, the funds received from the IMF should be utilised through sound financial discipline and proper management if it is to be an answer for the country’s economic woes.
Though we obtained IMF support 16 times earlier we did not take steps to adhere to the conditions set out. We must allow for the same situation this time around as working according to the agreement will ensure that we can establish financial discipline and proper management.
When the IMF provided us aid in 2016, they expected us to fulfill the six goals set out. But we were not able to do so. Now similarly they have set out a series of goals we must achieve. We must ensure we adhere to them this time.
Sri Lanka obtained local and foreign loans. Our economy went bankrupt as we were unable to repay them. While Sri Lanka obtained over US$ 12 billion as loans since 2015 we are now being forced to restructure our debt as we have been unable to service them. Now we must act responsibly as never before. We must combat corruption, increase foreign investments and develop local industries and move towards a production economy.
IMF aid is helping us balance the Government’s expenditure this month which requires Rs. 196 billion for salaries and other expenses while our income is only Rs. 173 billion. It is a relief that the IMF is allowing us to allocate some portion of the funds to narrow down the budget deficit. If not, it would have been difficult and challenging to meet the expenses including the paying of Government employees’ salaries in March and April. Creditors have supported us in the debt restructuring efforts. Now we must bring our country out of bankruptcy. If not for the IMF loan we would not have managed the country’s expenses for more than two more weeks.
President Ranil Wickremesinghe is the only leader who has a good understanding of the structural and technical procedures to be carried out in order to properly manage public finances to get rid of the issues facing the economy such as the budget deficit, the severe negative import and export gap in foreign trade, and public debt.
Accordingly, back then he presented the Financial Responsibility Management Act (FRMA) No. 3 of 2003.
During the year 2002-2003, I was the Minister of State in charge of Finance. At that time, President Wickremesinghe had a deep understanding of the reforms that should be carried out in public enterprises and more importantly the changes that should be made to create overall fiscal discipline and good management.
But the inability of the subsequent Governments to follow the plan led us to this crisis. The country cannot go forward without reforms. Expert technical support has been obtained and restructuring efforts are underway. Despite the opinions of the critics, this is a serious and complicated task. We have begun this on a successful note.”
Approval of IMF loan is important to get support from international institutions - Prof. Harendra Kariyawasam, former Head of Accountancy Department, University of Sri Jayewardenepura
“If the loan was not approved by the IMF, we would not have an opportunity to take loan facilities from any foreign country or financial institution. Therefore, this intervention is very valuable. What we need to do now is to make the most of this opportunity and build the country by managing the funds with strict financial discipline.
Therefore, the country should be directed to a productive economic process in order to maximise the economic growth, development process and reduce the import and export income gap.
We should do as much as possible to increase the amount of foreign exchange received by the country. A program should be implemented that will have long-term economic benefits in all sectors.
In 2026, our foreign exchange reserves should be at least US$ 10 billion. The country’s debt as a percentage of GDP should be reduced from 128 percent to 90-95 percent. Economic growth should be at least 3 percent. Legislation should be introduced to ensure good financial discipline. Laws must be introduced to prevent hoarding of foreign exchange abroad and illegal money transfer systems such as Undiyal.
The IMF facility should be used in the same way as performance targets - Prof. Shirantha Heenkenda, Faculty of Humanities and Social Sciences, University of Sri Jayewardenepura
“An economic program agreed with the IMF should be implemented immediately. Reforms of State-Owned Enterprises (SOEs) should be done. Especially in joining this program, there is an opportunity for us to rebuild faster.
It should be done with everyone’s cooperation to make it successful. A formal mechanism should be put in place to restructure loss-making SOEs. Steps should be taken to carry out this process on a technical and scientific basis.
Based on the agreement reached with the IMF, we must speed up our economic reform process.
We need to deeply consider why we entered into an agreement with the IMF. We all know that there is a big balance of payments problem in our country. The budget gap is also significant.
There are a number of reforms that we need to do to increase Government revenue.
By fulfilling them, the Government’s revenue can be increased. To increase our export income, we must start a manufacturing economy.
We need to make our public sector more efficient. We must implement the IMF agreements no matter what the obstacles are. They should not be interrupted.
This crisis can only be overcome by working together.”
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