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Sri Lanka rupee at 305.80 & 306.20 against the US dollar, bond yields steady
ECONOMYNEXT – There is broad recognition among various stakeholder groups that Sri Lanka has been through a crisis and ambitious reforms are necessary despite some differences of opinion, a top International Monetary Fund (IMF) official said after discussions with said stakeholders.
IMF Asia and Pacific Department Director Krishna Srinivasan told a media briefing on Monday May 15 in Colombo that he had met with a “variety of stakeholders” including trade union representatives during a four-day IMF mission ahead of a review due in September.
“There are differences of views in terms of reform priorities, the pace of reforms, and so on. But there is a broader recognition that the country was in crisis and that ambitious reforms are needed ,and that they should be pursued in a comprehensive way,” said Srinivasan.
“You’ll have various stakeholders and they’ll have different views. That’s to be expected,” he added.
Srinivasan was responding to a question posed by EconomyNext on resistance to some of the IMF-prescribed reforms, particularly with regard to a hike in personal income tax which was met with strong protest.
Asked about public-buy in for the painful reforms that Sri Lanka is required to undergo as part of the crisis-hit country’s 17th IMF programme, IMF’s Senior Mission Chief for Sri Lanka, Asia and Pacific Department Peter Breuer said that the public may perceive an overlap between the crisis and the reforms needed to overcome the crisis.
“In people’s perception, these two things are linked and they may not like it. But Sri Lanka is a good example of what happens when the IMF isn’t here,” he said.
Breuer said the pain of the crisis was already palpable long before the IMF’s 2.9 billion dollar extended fund facility (EFF) was approved in March.
“You know it better than we do. The pain was clear and present. What the IMF does is it provides some financing that cushions the transition from a very harsh reality to a new equilibrium. It gives a little bit of breathing space to let these necessary reforms take place and help the country emerge from the crisis [in the medium term],” he said.
IMF Resident Representative in Sri Lanka Sarwat Jahan said she has personally has a first-hand understanding of what the people have been going through with inflation, high interest rates and loss of jobs having a tremendous impact.
“But we’re also here to work with you so that, through the stabilisation process, Sri Lanka will come back to where it was perhaps two years ago,” she said.
In the absence of a survey on public support for the IMF programme, it is hard to accurately assess whether there is wide acceptance of the government’s reform agenda that is largely in line with conditions posed by the international lender. The reforms include revenue based fiscal consolidation, restructuring of state-owned enterprises and other measures that are politically sensitive.
Sri Lanka’s opposition parties, too, have also been blowing hot and cold on the reforms. The main opposition party, the Samagi Jana Balawegaya (SJB), which was among the first to urge the then government to approach the IMF for a bailout in early 2022, has now taken a more cautious tone. Spokesmen for the party have alluded to a unique economic vision the party possesses with regard to macroeconomic development that doesn’t necessarily include the IMF
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In a meeting with SJB and a number of other opposition MPs following on Tuesday May 16, SJB and opposition leader Sajith Premadasa told the visiting IMF officials that Sri Lankans are undergoing unbearable hardships due to poverty and the tax hike while small and medium enterprises are also struggling. Seeking IMF assistance in overcoming these issues, Premadasa asked the officials to pressure the government to be more transparent with how it spends the funds it receives.
The leftist National People’s Power (NPP) led by the Marxist-Leninist Janatha Vimukthi Peramuna (JVP), on the other hand, has been increasingly hostile towards IMF-backed reforms. The party, which has been gaining ground at least according to one opinion poll, was not overtly opposed to IMF assistance at the onset of Sri Lanka’s crisis early 2022, but has turned up the volume on its anti-IMF rhetoric since the appointment of President Ranil Wickremesinghe whose administration successfully negotiated the IMF deal.
One reason for the scepticism levelled at the latest IMF programme is that it is Sri Lanka’s 17th, the previous 16 not having delivered the anticipated results. Addressing this concern, Srinivasan said at Monday’s press briefing that this time it’s different in one critical way.
“Debt is assessed to be unsustainable. In the past, the crises were more of a balance of payments nature. What do you do to ensure that debt is sustainable? That requires some very strong reform efforts – even if you talk about revenue based fiscal consolidation and so on, which is pretty ambitious. There is little choice. If you don’t do these reforms, your debt is going to get worse and you don’t want that,” he said.
The authorities have so far shown commitment to the reforms they have undertaken, he said, as evidenced by the government meeting all prior actions that were required before IMF board approval on the loan.
“It’s important to recognise that they showed commitment to the reform efforts. Now, going beyond that, what is different is that it goes towards building greater ownership and buy-in from the population at large,” he said.
Efforts taken by the government to address corruption vulnerabilities, one of the pillars of the programme and the governance diagnostic requested by the government should “assuage people that these issues are being taken seriously,” said Srinivasan.
“We recognise that this programme is very ambitious and a difficult one, he added.
The official said the IMF also recognises that the programme will have a disproportionate impact on the poor and vulnerable. The floor on social spending that the organisation has prescribed is among the various elements that will go towards more public buy-in, he said.
“There is reason to believe that there is more commitment and this programme will succeed,” he added. (Colombo/May17/2023)
