The International Monetary Fund (IMF) has agreed to release the third instalment under the comprehensive credit facility approved by Sri Lanka. The second review of Sri Lanka’s loan program has been approved by the IMF Executive Board.
An 336 million US dollars had been released to this country as part of the third instalment. The IMF noted that Sri Lanka has met all the quantitative targets except the marginal deficit of the Social Expenditure Indicator target of the IMF assistance program. Its Deputy Managing Director Kenji Okamura said that the economy has begun to recover, with inflation remaining low and revenue collection improving.
He said that the Sri Lankan economy is still in a vulnerable zone due to the delay in achieving debt sustainability. He said that it is very important to end debt restructuring quickly and protect social and capital expenditure while improving public financial management to help improve financial discipline and the need to strengthen the debt management framework. Prof. Priyanga Dunusinghe said that this achievement can also be recognised as a testimony to the country’s commitment to advance economic reforms and secure a prosperous future for all Sri Lankans.
After the end of the second IMF review this year, the receipt of the third instalment can basically be recognised as a good condition for the recovery of the economy. This is because through it, the confidence of the investors and donors, both local and abroad, has been established. It is an essential factor for the good progress of the country. Also with the receipt of the third tranche, we have received the assurance that the IMF has built confidence in the fact that the government is committed to carrying out the necessary economic reforms in the future. Such an assurance is essential for this country.
Because with the collapse of this economy, there was some doubt in the various parties dealing with us, on the other side of local and foreign investors, as to whether Sri Lanka can carry out the necessary reforms to restore the economy. The reason for that was the political and economic instability at that time. In the past, there were political parties and a government in power that did not want to deal with the IMF.
Also, it was a time of civil unrest. Many political parties protested the then government. Some doubts arose among local and foreign investors whether Sri Lanka would continue with these reforms. However, these new reforms led by the President were all policies and reforms that were politically unpopular. Also, the reforms that caused great distress to the people had to be taken at that time.
There was an opinion about whether such reforms were possible, but the Government had the ability to overcome all uncertainties and carry out reforms. It was also possible to provide the necessary leadership to create some awareness. Officials and political leadership were created to provide the needed driving force.
Investor confidence
This is why this IMF third tranche is very important. That means it is more important to build investor confidence. The parties that had given loans to the Government waited to see if the former economy would recover and if the country was ready to make the necessary reforms. A positive message has been released through the IMF. This tranche was issued at the right time as the assurance given by Sri Lanka from the time it came to agreement with the IMF has built trust by protecting credibility. The fact that the IMF continues to support reforms required by a country’s economic program is a great strength.
Through this, the public will also have confidence to get the various aid and support needed at the international level. It is important that the economy recovers in the IMF work and that they are with us at this time and that the IMF continues to support this country. Also, this is necessary for many economic reforms which are essential for our economy. Whether imposed by the IMF or not, these reforms are the ones that must be done as a country. Receiving IMF support is a special achievement we have accomplished as a country.
Also, IMF Sri Lanka’s influence is very important to turn the economy in the right direction. We are definitely looking into the matter of fulfilling these conditions as a country. If fulfilled, the premiums will be waived for the specified period.
Given the Government’s credibility, it is timely to encourage the IMF to support. It has to introduce the related institutional structure accordingly to be located on their goals. To get the most successful results, you have to go beyond and ensure that you execute them properly. It is said that many of the goals to be achieved by December 2023 and April 2024 have been achieved. Most of the targets, except the one related to social expenditure, have been achieved by December 2023 and others by April 2024 or later.
Sri Lanka is also carrying out many economic reforms that have been agreed upon to the satisfaction of the IMF. But especially still we have failed to complete the debt restructuring process related to achieving debt sustainability. In that, the economy is still in a risky situation. These are the different global conditions that economies face. We should be concerned about that too. It can be shocks in the global economy, environmental shocks, climate shocks. If such a shock happens in any way, there is more than a chance that the country will once again go into economic crisis.
We have still failed to complete the debt restructuring process related to establishing debt sustainability. So far we have not been able to approach foreign credit sources. Therefore, we are still unable to obtain the necessary credit facilities from multilateral or bilateral sources or the international financial market; here we should pay special attention to the situation of bankruptcy.
If any external shock occurs in such a situation, there is a very high possibility that the economy will be at risk once again. Therefore, the IMF basically states that our economy is still at risk. After the economic crisis, several shocks have to be faced.
Even if we have built up our reserves to some extent, we need to complete the debt restructuring process to achieve debt sustainability. Accordingly, it is possible to reduce the risk in that situation.
Economic stability
In the matter of Sri Lanka’s further economic reforms, special attention should be paid to establishing overall economic stability, price level stability, and taking measures related to good governance. We must continue to advance economic reforms, especially in the field of reserve building. Also, when the IMF comes to do our assessment, it is not appropriate to issue a gazette and do certain things in haste, and there should be preparations for them.
There are several steps taken to pass this IMF test. Even if the IMF passes the test, we are more likely to fail in the medium and long term; if we simply issue gazettes with the aim of passing the IMF test in a short period of time, if we have made legislation, if bills have been passed by the Parliament, it is not a successful action. Despite the introduction of the Anti-Corruption Act; Till today there is no institution related to it. Although we introduced the decrees related to these IMF conditions and carried out the reforms, there is no program to actually bring them to the operational level. These are issues that policymakers should study more deeply, because here the bad results can occur after some time.
Also, there are many challenges that we have to overcome in the future. Many of the existing reforms in IMF conditions have been introduced. A legal system has been introduced. The legal system related to it is introduced, the organisational structure is identified, and their goals must be ensured. Just completing the qualification for a second term will not achieve the economic reforms we hope for. Bringing in the Anti-Bribery and Corruption Act is a condition of the International Monetary Fund. Just because the Act is introduced does not ensure the proper implementation of the Act, does not stop corruption.
An institution has been introduced but the matter of proper implementation of that institution is more important. Just because an anti-bribery act has been introduced, this act should be properly implemented in order to stop corruption. It is the government’s responsibility. We can turn the economic stability achieved in the medium and long term into successful growth only if properly implemented. Achieving common goals alone will not achieve medium- to long-term economic success. The IMF has set targets related to the basic sectors and directed the government to the relevant journey. From there, you have to act according to the principles.
This trip should be taken very carefully and one has to understand that it is risky. As inflation in the economy has reduced, as the rupee has strengthened, as essential commodities are now available, the focus on risk should be understood. Economic growth has begun. Therefore, it cannot be said that the risk has disappeared.
If you look at the countries that have gone through economic crises in the world, even in the case of minor shocks, a crisis situation in the world economy, a weather climate situation, changing policies once again, this victory will be lost and collapsed very quickly.
During the efforts of countries like Mexico and Chile to get out of the economic crisis with IMF support, those countries had to face various other shocks. When we have to face those shocks, what happens goes to those economic crises. Because of this, we need to build a certain amount of foreign reserves through the IMF. On the other hand, there should be some progress in public finances. The government has to face the shocks of fully spending the revenue. A part of the government’s income should be kept as a security. That is, it is necessary to leave some parts to be used in a difficult situation. Therefore, these policymakers must proceed with these reforms if they want to turn the stability achieved by the public into sustainable stability.
It is not advisable to change the policy while proceeding with those reforms. If the governments change in some way, it is not appropriate to change the policies and change the conditions. On the other hand, we have to prepare for some shocks. There may be some shocks in the economy. You have to prepare the necessary strength to face it. We have not finished refinancing the foreign debt. The debt is unsustainable. No matter what economic crisis we are in, it is impossible to get a new loan in an unsustainable debt situation. As Peru recovered from the 1990-1995 economic crisis, the shock of the Asian debt crisis hit them. It can be weather, climate conditions, political conditions, crises can happen even in the global economy sector. It should be noted that debt restructuring has not been completed.
No one offers to give loans because the loan has not been paid. Therefore, debt restructuring should be completed as soon as possible in order to create debt sustainability. Therefore, the most important thing in this is to carry forward the economic reforms, regardless of which government comes to power. Instead of doing some experiments, problematic situations may arise. We believe that all political parties should and do understand this and mature politicians do.
– Translated by Jonathan Frank
