The IMF coming to Sri Lanka’s rescue resulting in even firecrackers being lit in celebration is quite karmic, given that it is the same Government members who not so long ago breathed fire and roared about the multilateral agency’s ‘interference in internal matters’ through its programmes. Some even famously questioned the need for a government if all that it did was to carry out the dictates of the entity. 

In fact, such was the din created by the anti IMF/American lobby led primarily by the governing Sri Lanka Podujana Peramuna (SLPP) at the last hustings in 2019 and 2020 that scores of Sri Lankans domiciled abroad were mobilised to travel here simply to cast their vote for the party and ‘save the country’ (rata beraganna) from what was touted as a foreign conspiracy through the MCC, IMF et al. In fact, up until the current President took office last July, the mantra of the governing SLPP was to implement a ‘home-grown solution’ as opposed to IMF intervention.

Funnily enough, in true Sri Lankan political style, it is those same people who are today getting their supporters to light crackers and sing the praises of the IMF. As far as the IMF is concerned, it must surely be laughing all the way to its Headquarters in Washington DC. 

Given the unprincipled nature of our politicians, it is about time that those governing this country realised that in today’s dog-eat-dog world there is nothing called a free lunch and even the current IMF bailout is at the end of the day yet another loan that must be paid back with interest in four years’ time. Yes, there is no grace period. They must also realise that boasting about more loan funding being available on the strength of the IMF bailout is hollow at best and simply tells the world that the only plan on the table is to secure more loans in order to settle existing loans – nothing beyond.

For all intents and purposes, it is the IMF that is calling the shots today on the economic front despite approximately one-third of its first disbursement of $ 330 million already being used to partly pay off an overdue Indian credit line. No doubt Bangladesh must now be lining up for a payoff of its long overdue $ 200 million facility, which if paid will evaporate the first tranche. The second tranche of the $ 2.9 billion facility spread over four years can only come about after the first review, which is due in June/July. In the interim, the administration is obliged to fulfil its part of the bargain, including the implementation of painful State sector reforms.

Sri Lanka’s IMF engagement has also caused ripples in the global geopolitical arena, as the US- and Indian-backed IMF programme has succeeded in effectively countering the Chinese economic influence over the country’s economy despite China holding back on relief support due to the sheer enormity of its investments here – most of which happen to be white elephants built on credit on commercial terms. In fact it was the Chinese green light for debt restructuring that delayed the bailout approval, but fresh after securing a further term in office, the Chinese leadership like its Indian counterpart must have seen the light in hoping for a payout with its brief two-year debt moratorium coming to an end this December.

As far as the Government of Sri Lanka is concerned, it now has its work cut out to ensure that the 17th IMF programme in the country is fully implemented unlike the last 16, as the current circumstances preclude it from abandonment midway. In a nutshell, it will have to be the IMF way or the highway for the foreseeable future. It appears that sovereignty being compromised for a mess of pottage is no longer a concern for the cardboard lions.

However, this is where things are likely to get dicey. The divestment of State-Owned Enterprises as envisaged in the reform programme – the first batch of which includes highly-profitable entities like Lanka Hospitals, Sri Lanka Telecom, Litro Gas, and Sri Lanka Insurance – has already raised a hornet’s nest among the powerful trade union fraternity despite the heavy hand of Government to subdue the unions. 

It has also propelled the anti-privatisation parties within the governing coalition to think twice, making the passage of pending legislation, including the new Anti-Corruption Bill that is currently in the making, a challenge. It is supreme irony that the party that stands accused of mega corruption is now tasked with passing legislation to fight corruption. How that plays out in what has been described as one of the most corrupt of parliaments this country has ever had will be interesting to watch.

The other matter of concern is one of credibility, with the country and its people being committed to a complex socio-economic reform programme that can potentially result in far-reaching consequences over an extended period of time by a leadership without a popular mandate. The main Opposition is already on record that it does not intend to pursue the current IMF programme in its present form should it come in to power, indicating that new negotiations will have to take place in order to ensure continuity of the four-year programme – during which time both a Presidential as well as a General Election will be due. Therefore, as to how long the programme can last in its current form is anybody’s guess. Meanwhile, an Opposition MP slammed the IMF’s transparency policy, which allows policy intentions, among some other details, to be kept secretive. 

Notwithstanding such impediments, following the IMF Executive Board approval of its Extended Fund Facility for Sri Lanka on Monday, Managing Director Kristalina Georgieva pointed out that it was “critical for the Government to take ownership of the reform programme”. As to how the current administration can take ownership of a programme as profound as the one being rolled out, only time will tell. Even though the Letter of Intent for IMF engagement is yet to be submitted to Parliament as pointed out by the Opposition, according to the report tabled in Parliament by the President, the programme itself is targeted at ensuring fiscal consolidation, boosting tax revenue, rebuilding foreign reserves, improving economic governance, and strengthening the independence of the Central Bank.

The programme targets almost amount to a report card of the profound failures of successive governments in just the last decade, especially the politicisation of the Central Bank during the Rajapaksa era, which led to multiple compromises, especially in economic governance, tax collection, and foreign reserves, ultimately leading to a severe recession, hyper-inflation, unsustainable public debt, and financial sector vulnerabilities.

While “ambitious, revenue-based fiscal consolidation is necessary for restoring fiscal and debt sustainability,” according to the IMF’s MD, the methodology in achieving it through heavy, unsustainable taxation and selling of State-owned assets remains questionable. While no one will grudge taxation, the ha-ho that has erupted is all about its sustainability as most businesses and individuals find the current rates suffocating. Needless to say, it will lead to de-escalation of economic activity. Export data for the month of February 2023 shows a decline of 8% compared to the same period last year, further highlighting the challenges ahead.

Therefore, the question of whether a shrinking economy and Gross Domestic Product can sustain higher taxes is open to debate, especially in an environment where there is hardly any protection for the poor and vulnerable, with even the existing social safety nets being systematically dismantled. Let’s hope the bailout does not become a sellout for the marginalised people.