ECONOMYNEXT –Marxists Janatha Vimukthi Peramuna (JVP)-led National People’s Power’s (NPP) economic policies will erode Sri Lanka’s economic recovery and lead to the second economic crisis, Foreign Minister Ali Sabry said.
Sabry, the former Finance Minister who started negotiations with the International Monetary Fund (IMF) in 2022, said the economic policies announced in the NPP’s election manifesto this week lacks clarity on additional funds needed to manage higher spending for the proposals.
The NPP is populour at the grass root level and among the rural voters and many analysts see the possibility of its presidential candidate Anura Kumara Dissanayake winning the September 21 poll.
Some analysts see the move as the end of an elitists-dominated 76-year post-independent politics in Sri Lanka.
The JVP or NPP has ruled the country and critics say they lack experience in governance. Political analysts say JVP’s strong anti-corruption stance has helped to draw public support after the 2022 economic crisis and Bangladesh-style mass protests.
Sri Lanka’s economy and rupee collapsed as the island nation faced an unprecedented economic crisis in 2022 before President Ranil Wickremesinghe’s government tightened fiscal and monetary policies in an IMF-led economic reform programme.
In its proposals, the NPP has indicated many social protection and welfare policies which will cost the state more than now while promising to reduce taxes.
“This is a recipe for disaster,” Sabry told reporters at a media briefing in Colombo on Wednesday.
“You don’t need rocket science to tell this. This is what our government unfortunately did in 2019. When your expenditure is higher, your income also should be higher,”
“But, when your expenditure is higher and income is going to fall, then it can’t be done without printing money. When you print money, the rupee will collapse. Inflation will spike, dollars will disappear and we will see the 2022 situation,” he warned
“They have written the policies craftily, but they have not explained how they are going to do this.”
The NPP’s policies are heavily criticised by its rivals and the Wickremesinghe’s government.
Sabry said the whole economic recovery is based on the IMF’s Debt Sustainability Analysis (DSA) with five key targets including reducing debt to gross domestic product (GDP) to 95 percent from 119 percent in 2022.
NO CLARITY
“But the NPP vaguely says it will change the DSA without explaining how it will do that,” Sabry said.
“Countries will go away from the debt restructuring programme. They will say we agreed based on DSA, but now you are trying to change the parameters.”
Sri Lanka faced the economic crisis with sovereign debt default in 2022 after former leader Gotabaya Rajapaksa cut the taxes soon after his election in 2019 before the country faced a parliamentary poll.
However, that move led to the economic crisis after the country lost 600 billion rupees annually due to the tax cuts.
Sabry said no alternative proposals have been discussed on changing DSA.
“. This discussion (of altering DSA) will be a failure and all debt restructuring will collapse. If you breach the trust and agreement agreed with the world, the IMF won’t come. The U.S. won’t come and the Paris Club won’t come,” he said.
He also warned the country is likely to lose around $1.3 billion in total from the IMF, World Bank, and Asian Development Bank (ADB) if the country attempts to change the DSA parameters.
Central Bank Governor Nandalal Weerasinghe on Monday said Sri Lanka’s economy has returned to normal to a great extent in a short period of time and warned against a deviation from the ongoing reform agenda.
Weerasinghe said the progress made is not by chance but is the result of coordinated, transparent, and robust measures undertaken by the Central Bank and the government, supported by numerous public and private stakeholders as well as international agencies and lenders and Sri Lanka’s creditors. (Colombo/August 28/2024)