With the much-awaited International Monetary Fund’s (IMF) Extended Fund Facility (EFF) receiving the IMF Executive Board’s approval this week, Sri Lanka remains hopeful that resuscitating the collapsed economy would be possible in the foreseeable future. With the receipt of the EFF, the country is to witness more economic changes than it did during the past few months.
While the EFF does not constitute the “solution” that the country desperately needs, it is indeed a significant enabler to begin a process to achieve a sustainable economy. As was aptly stated by Finance, Economic Stabilisation, and National Policies Minister and President Ranil Wickremesinghe while seeking a 10-year moratorium on the country’s external debt, the EFF would only give Sri Lanka a “breathing space” until the country is no longer bankrupt. In this context, it is crucial to understand the reality that while the EFF assists Sri Lanka in any way it is useful, the country must pay serious attention to the domestic steps that must be taken in order to not find itself in the economic abyss it is currently in.
Sri Lanka received the EFF based on the assurances given by the country’s leading creditors and also on several concrete reforms and promises for more. To have any hope with regard to economic revival beyond the IMF’s EFF and more foreign loans, the country must rectify the factors that pushed it into a deep economic crisis in the first place.
Key factors that need to be addressed are poor policy formulation and financial discipline, issues that have plagued many Governments since gaining Independence in 1948. Short-sighted and unscientific financial policies and decisions, loan-funded projects with little to zero return on investment, ignoring warning signs of the country’s bankruptcy, and politicising the overall financial and debt management led to the Sri Lankan economy collapsing. The incumbent and future governments must maintain high financial discipline and form a robust, transparent policy formulation mechanism that is supported by science and managed by proven experts.
Above all, looking at the Legislature’s responsibilities pertaining to financial discipline purely through a political angle and as a matter of one Government’s tenure, must stop, and strict anti-corruption and anti-waste measures need to be taken forthwith.
An important aspect of the Government’s financial discipline pertains to public sector reforms. While the Government has set out to take difficult yet necessary decisions in this regard, which led to massive utility tariff and price hikes and also tax hikes, future reform-related measures should prioritise not just rectifying wrong policies and decisions that bankrupted many leading public sector institutions but also averting the same in the future. Needless to say, the Government’s financial discipline has a direct impact on whether the public sector helps or slows down the country’s economic recovery.
Further, the Government must be cognisant of the strain that has been placed on the backs of vulnerable communities that are already under significant pressure.
The abovementioned measures play a significant role in the form of the economic model that local and international economists have recommended that Sri Lanka should employ. At the centre of that model is reviving and maintaining at an optimum level the country’s foreign reserves, which depend largely on strengthening the export economy, reviving the tourism industry, and attracting more foreign investments. The success of utilising these avenues as foreign income and investment gainers essentially depend on how successfully the Government gains the international community’s trust, which again points to the importance of strict financial discipline.
The fact that the IMF trusted Sri Lanka for the 17th time and the country’s lenders at this juncture is a temporary victory, and if managed properly, it could lead to sustainable stability and growth. It is time to understand that speaking of how Sri Lanka plans to follow in the footsteps of former Singaporean Prime Minister Lee Kuan Yew is not sufficient and that what is truly necessary is taking tangible, scientific, and honest actions, with the involvement of experts.