It is a great victory for the people of Sri Lanka that the International Monetary Fund (IMF) has approved the US$ 2.9 billion Extended Fund Facility (EFF), which will be spread over four years. The first tranche of US$ 330 million has already been received by the Government and a part of it has been used for debt servicing.
The IMF package is no doubt a lifeline for an economy that had plunged to its nadir as a result of economic mismanagement, the after-effects of Covid-19 and the global economic downturn. April 2022 seems to be a distant memory now that the country has achieved near-normality, but the long queues for essentials, the 13-hour power cuts and the escalating Cost of Living (COL) that existed then precipitated a chain of events that ended in a change of the country’s political power structure.
One major fault of the Gotabaya Rajapaksa administration was that it refused to seek IMF assistance even as the economy collapsed right before our eyes, based on false notions of patriotism and sovereignty, ignoring economists’ advice. Countries such as Greece and Argentina which have much bigger economies than ours had to eventually swallow their pride and go to the IMF.
With the departure of Gotabaya Rajapaksa from the presidency and the advent of veteran statesman Ranil Wickremesinghe to the same position through a constitutionally mandated, perfectly legitimate process, there was a discernible shift towards accepting IMF assistance. President Wickremesinghe made it clear to Parliament and the public that there was no alternative to seeking IMF help at this critical juncture. Fortunately, the President and the new Governor of the Central Bank of Sri Lanka (CBSL) Dr. Nandalal Weerasinghe were on the same page with regard to IMF aid.
Indeed, the credit for securing the IMF package within more or less one year through extensive discussions with the IMF top brass should go mostly to President Wickremesinghe, followed by Governor Dr. Weerasinghe, Treasury Secretary Mahinda Siriwardena and Presidential Chief of Staff Sagala Ratnayake, who worked behind the scenes day and night. Only a few countries have received IMF packages in such a short period.
The Government took a huge socio-political risk by acceding to and implementing all of the IMF’s tough conditions before the disbursement was made, for none of those conditions is popular. Accordingly, the Government had to raise fuel and electricity prices, impose high tax bands for many categories and begin a restructuring process for several State-Owned Enterprises (SOEs) burdening the economy, to give just three examples. While there already are rumblings about these reforms from various sectors in society, the time has come for the people to realise that such reforms must be implemented for economic recovery, regardless of the IMF factor. To cite one instance, the country simply cannot afford to spend around US$ 6 billion on fuel imports per year and then sell fuel at a loss. Hence the need for a cost-reflective pricing formula for all consumer goods and services.
President Wickremesinghe has rightly asked all segments of society and especially the Opposition to make the IMF program a success. Some Members of the Opposition have ridiculed the IMF assistance, saying that US$ 2.9 billion is not adequate to lift our economy from the doldrums. True, that amount by itself may not be enough to resolve all our economic issues, but an IMF program generally gives an assurance to the international community, including investors, about our ability to manage finances and repay debt.
This factor alone is likely to unlock further financing from the World Bank (WB), the Asian Development Bank (ADB) and other lending agencies to the tune of US$ 7 billion initially. Moreover, bilateral donors are also likely to re-start funding for programs such as the Malabe-Colombo Light Rail Transit (LRT), the Bandaranaike International Airport (BIA) expansion project and the Kadawatha-Meerigama Central Expressway stretch.
Some Opposition figures have also tried to mislead the public with regard to IMF programs. They predicted that the IMF was seeking a “regime change” before the funds were granted. Now that such an event has not come to pass, one Opposition MP has gone on record saying that the IMF only assists corrupt Governments. Since this received wide publicity only in the vernacular press, IMF officials may have missed it. But the officials should clear all doubts and clarify the extensive and transparent process that accompanies an IMF program, along with the mandatory requirement for anti-corruption legislation.
On the other hand, plaudits are due for several Opposition MPs including Dr. Harsha de Silva and Kumara Welgama, who have spoken in support of the IMF program. That is the correct attitude which must prevail at this challenging moment.
There is a long way to go before Sri Lanka can completely recover from the economic impasse. The IMF package is only a start in the right direction. In this backdrop, all should cast aside petty differences and join hands to put the economy back on track.
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