Just two years ago, the country’s economy was so dire that even many respected local and foreign economists said Sri Lanka would not emerge from bankruptcy at least for several decades. In fact, when former President Gotabaya Rajapaksa offered the post of Prime Minister to the main Opposition leaders, they literally ran away, knowing the magnitude of the problem.
At that crucial juncture, only the sole MP from the United National Party (UNP), Ranil Wickremesinghe, accepted that challenge. He did not try to hide the facts and the stark reality from the public. On the other hand, he apprised the people of the difficult path ahead. This was a rare moment of candour in local politics, which is generally rife with exaggerations and even outright lies.
One of the main factors that led to the economic crisis, and ultimately to the ouster of President Gotabaya Rajapaksa, was the previous administration’s outright refusal to seek the help of the International Monetary Fund (IMF), the world’s lender of last resort, based on misplaced notions of patriotism and sovereignty. Had the economic pundits of that administration made the decision to go to the IMF a few years ago, the economic crisis would not have transpired at all.
After ascending to the Presidency, Wickremesinghe lost no time in negotiating with the IMF, which resulted in Sri Lanka getting a US$ 2.9 billion Extended Fund Facility (EFF), subject to somewhat difficult and unpopular terms and conditions. However, the IMF has stressed that following these to the letter would be essential to ride out of the economic storm. Hence, among other measures, many subsidies were removed, new taxes were imposed, existing taxes were increased and overall fiscal discipline was ensured.
The IMF bailout is not just about receiving funds to recover from the economic crisis, but rather, it is a ticket to wider recognition from bilateral and multilateral lenders, International Sovereign Bond (ISB) holders and rating agencies. It is also a signal that the country’s economy is finally recovering and many donors have since resumed funding for stalled development projects such as the Bandaranaike International Airport (BIA) development project.
The Opposition has said that while they do not oppose the IMF agreement in principle, they would negotiate with the IMF to change some, if not all, of the conditions. Chairman of the Parliamentary Committee on Public Finance (COPF) Dr. Harsha de Silva has gone on record that a future Samagi Jana Balawegaya (SJB) President or Government would work with the IMF to lift or alter certain conditions laid down by the lending entity.
This is fraught with danger, since any deviation from the IMF program at this point of time carries the risk of the economy crashing again within a matter of weeks. The program has been carefully formulated with the target of achieving overall economic emancipation by around 2042. This is a step-by-step process that must be completed in the proper sequence. Even the slightest deviation from it could result in severe consequences for the economy and by extension, the people. Sri Lanka had earlier gone to the IMF 16 times, but the economy reverted to square one as successive Governments reneged on the agreements. Such chances should not be taken on this 17th attempt.
“We will change the IMF agreement” seems to have become a favourite slogan of the collective Opposition. While some MPs in the Opposition have little or no understanding of the vast scope of the IMF agreement, the same cannot be said about Dr. De Silva, who is a qualified economist. He should know better than others that trying to alter the IMF agreement is a risky venture.
For example, Dr. De Silva has said that the Value Added Tax (VAT) and other taxes would be looked into if they come to power. Such ideas are indeed popular and populist, but the country’s coffers may not be able to accommodate the funding requirements. Besides, the IMF itself has said that Sri Lanka should not go back to the old days of handouts and very low taxes, if it wants to improve the economy.
The crux of the matter is that any future Government will have to continue the IMF agreement and its associated clauses such as debt restructuring according to the stipulated guidelines and timeframes, lest the country go back to the dark days of 2022. Such an eventuality should be avoided at all costs as the country cannot afford a repeat of the unprecedented economic, political and social chaos of that era.
All Presidential candidates must clearly declare their stand on the IMF agreement so that the public can make an informed decision at the ballot box. Any wrong move here by the voters could potentially send Sri Lanka back to an economic abyss from which it would be almost impossible to recover.
This is indeed why the September 21 Presidential Election is perhaps the most crucial poll ever in Sri Lanka’s recent history. It could decide the very future of the country and the next generations. Many voters have already forgotten the trials and tribulations they went through just two years ago and could be gullible to the rosy promises given by certain Opposition politicians. Instead, voters should make a careful analysis of the promises and rhetoric emanating from the political stage before heading to the polling booth. Voters should base their decision on cold, hard facts, not runaway emotions.
