There are three discernible schools of thought regarding Sri Lanka’s current engagement with the International Monetary Fund (IMF), whereby the multilateral lending agency is giving us an Extended Fund Facility (EFF) amounting to US$ 2.9 billion extended over three years.
The first argument, articulated strongly by Government Ministers and the Governor of the Central Bank of Sri Lanka (CBSL), is that Sri Lanka has to continue with this program at least until 2027, lest the economy crash with a bang.
The second one, proposed by some politicians especially in the Samagi Jana Balawegaya (SJB) is that if they come to power, they will renegotiate the terms and conditions of the IMF loans to make them more palatable and bearable to the public.
The third one is the most radical of them all – to do away with the IMF program altogether and rely on other methods to augment the economy, including exports, remittances and tourism. They also advocate that all funds allegedly looted by politicians and businessmen and now “parked” abroad must be recovered to pay back our foreign debts running into US$ 51 billion.
Every one of these proposals has its merits and demerits, but as a Nation we have to make a viable and realistic choice. Frankly, we are in an abyss as far as the economy is concerned. Granted, it is not as abysmal as it was in those dark days (literally, as there was no power either) of 2022, but we are still not completely out of the woods. That process will take at least a couple of decades. The first step of this long process is emerging out of bankruptcy, declared in 2022. That will unlock more financial and economic benefits for the country, as other countries and multilateral lenders will then be willing to extend assistance to Sri Lanka without entertaining fears of a default.
But the most convincing or even alarming argument in favour of the first school of thought is that the country will not last even two weeks in the present shape if the IMF program is truncated or abandoned at this stage. This was forcefully articulated at two events held in Colombo last week. The first event was the launch of a book on Budget 2024 and the present state of the economy by Transport, Highways and Mass Media Minister Dr. Bandula Gunawardena, a renowned economics expert, where three top economists drove this point home in addition to the Minister. The second was a news conference by CBSL Governor Dr. Nandalal Weerasinghe, who explained the importance of sticking to the IMF program to tide over the economic crisis.
The most highlighted fact at both these events was that Sri Lanka needs financial discipline to survive the current challenges. With or without the IMF strictures in place, Sri Lanka cannot print money or reach out to the international financial market, including International Sovereign Bonds (ISBs). In this context, the IMF program and the associated debt restructuring process (local and foreign) is the only way out. As Minister Dr. Gunawardena points out, any future Government that deviates from this path before 2027 will be able to exist only for two weeks. This point is so critical that Minister Dr. Gunawardena has urged Speaker Mahinda Yapa Abeywardena to concur with Party Leaders to arrange a three-day debate in Parliament on the same issue.
While that debate will indeed be a good opportunity to talk about this issue, the time has come for all political parties to seriously consider their stance on the IMF program instead of just resorting to populist rhetoric. That is exactly what has brought this country to the present position and we should strive to move away from that populist mentality. This is a fact that President Ranil Wickremesinghe has highlighted time and again. This is why he has taken a number of politically unpopular decisions such as imposing higher income and other taxes. The Government has also opted for cost-reflective pricing on utilities which were heavily subsidised earlier at a great cost to the Exchequer. Given the dire economic straits Sri Lanka is navigating, it is virtually impossible to continue on this path any longer. If any future Government reverts to these populist measures, bankruptcy will be the only possible result.
Our debt restructuring process will take around three decades to complete and our economy should be very prudently managed in the meantime. We have to build foreign reserves and domestic savings and strengthen our economy in myriad other ways. There could be a major socio-economic catastrophe if Sri Lanka abandons the IMF program midway – it is more than a mere loan for short-term survival, it is a recipe for managing the country’s economy in such a way that economic emancipation will be possible somewhere down the line.
Thus the explicit warning outlined in Minister Dr. Gunawardena’s book as well as the CBSL’s Governor’s views on the same issue should be viewed seriously by all, including those in the Parliamentary Opposition vying for power at national elections. The crux of the matter is that there will be no salvation without following the present course of action.