brand logo

Heeding Japan’s advice on IMF

22 Sep 2022

Sri Lanka is all set to start debt restructuring talks led by Japan on Friday (22), and the Government has expressed hope that these discussions would be a success. In a context where the efforts aimed at the country’s economic recovery depend largely on the receipt of the International Monetary Fund’s (IMF) Extended Fund Faculty (EFF) of $ 2.9 billion, which in turn depends largely on the successful restructuring of debt with a number of entities and countries, these discussions are a crucial step. However, Japan has pointed out an important fact to which Sri Lanka has not paid adequate attention. The Deputy Head of Mission of the Embassy of Japan in Sri Lanka Katsuki Kotaro, noted on Tuesday (20) that Sri Lanka cannot sit and wait around until it obtains the IMF loan, and that the country needs to create opportunities in trade and investment.  Japan’s sentiments should be taken seriously due to several reasons, especially due to the fact that the Government seems to think and convince the people that IMF assistance is the biggest support that the country should or can obtain as far as economic revival is concerned. A large segment also seems to believe that the IMF’s EFF is the solution that the country needs, when it is merely a part of the solution. First and foremost, Sri Lanka has to accept that despite how hopeful the country remains about the EFF, the bitter truth is, it is not confirmed yet. For Sri Lanka to actually receive this assistance, there is a lengthy and arduous process which involves various reforms in the domestic context as well as a successful debt restructuring process. In a context where the Sri Lankan Government has not shown in the past the capacity required to make the necessary reforms, especially with regard to public sector reforms, and the debt restructuring process being heavily dependent on the consent of Sri Lanka’s creditors to give Sri Lanka a second chance, getting the EFF is not as easy as it appears. At the same time, what Sri Lanka currently has is merely a staff-level agreement, and for the country to get the EFF even after the aforesaid tasks, the IMF’s board-level approval is necessary. Put simply, IMF assistance is farther than it seems. Secondly, even if Sri Lanka managed to get the EFF, it is not the whole solution that Sri Lanka needs. At the same time, a $ 2.9 billion which spans over four years is not a lot as far as the nature of the economic decline that the country is facing is concerned. Given the difference between the country’s expenses and the income, more monetary assistance is required.  Even though monetary assistance plays a huge role in the country’s economic recovery, the country has to deal with many non-monetary aspects of this recovery, such as political and social reforms, trade laws and policies, and practices that have hindered the country from evolving. Therefore, Sri Lanka needs to accept the fact that even if IMF assistance was received, that alone is not going to revive the economy or make the people’s lives easier. In this context, the Government has to be more responsible than it has been before. First of all, it has to stop portraying the IMF’s EFF as the panacea for all prevailing crises, to win the public’s support and political debates. More than ever before, now is the time for the Sri Lankan Government to be truthful to its citizens about the prevailing situation. Giving the people false or exaggerated hope is essentially a crime against the crisis hit country.  More importantly, the Government must stop relying too much on the EFF, and must instead prepare for the worst case scenario, as pessimism is often a strength in national governance. The GoSL must start looking into every possible step it can take to strengthen the economy without the assistance of the IMF or of any other external party. Keeping hopes on economic recovery is not a bad thing. However, basing those hopes on support that is promised, but not received, is not a good thing.  


More News..