ECONOMYNEXT – Sri Lanka’s Central Bank Governor Nandalal Weerasinghe warned the public that the country could go back to the 2022 crisis if any future government changes the current International Monetary Fund (IMF) subscribed economic policies and reforms.
Weerasinghe said there is hardly any space for economic policy maneuvering under the current situation, but there could be a few adjustments without changing the overall goals, which President Ranil Wickremesinghe government had agreed with the IMF.
Sri Lanka is in a recovery path after it entered into an IMF deal with some difficult reforms including higher taxes, steep cut in expenditure on government institutions, drastic reforms in state-owned enterprises, and stable inflation-targeted monetary policy.
“We need to continue the same process going forward and if there is a deviation, that would be a challenge. That’s the important message we want to give,” Weerasinghe told reporters at a media briefing in Colombo on Tuesday.
“This is to make the public aware because the public are the final decision makers. People should be aware that if we deviate from the current economic policies, there is a risk of we may go back to a situation like the previous crisis,” he said referring to 2022 unprecedented economic crisis when asked if he was warning a new government after a possible election later this year.
“It is not an issue with under which government. It is about the importance of continuing the same economic policies going forward. What we have done is we have informed the public that the economy might go back to the situation like the past crisis if we don’t go with the current policies.”
STABILITY RETURNS
Under the ongoing IMF programme, the island nation has seen economic stability.
The rupee has appreciated, the inflation has fallen to below mid-single digit from a record over 70 percent, tax revenue has risen, loss making state-owned enterprises have reversed high losses, market interest rates have reduced to a third from over 30 percent, and the economy has posted quarterly growth after contractions in six quarters.
The country’s primary balance also has posted a surplus in 2023.
Opposition parties including center-right Samagi Jana Balawegaya (SJB) and Marxists Janatha Vimukthi Peremuna-led National People’s Power (NPP) have said they will revise some IMF conditions as some of the policies including higher taxes have inconvenienced the public.
Weerasinghe said The IMF deal has seen some continuous changes since the global lender’s staff level agreement was released in September 2022.
“Changes are not in terms of the directions of the fiscal consolidation, need for revenue enhancement, need for curtailing expenditures, need for maintaining stable expenditure. need to build up reserves, and need to maintain financial stability,” he said.
“CAN’T BE CHANGED”
Weerasinghe’s comments come as the island nation has to go for presidential polls between September 18 – October 18 this year.
The political uncertainty has been on the rise as there has been no predicted winner in the upcoming poll. Opposition parties SJB and NPP are said to be leading in some informal polls, but no opinion polls have been done to find the leading candidate in the upcoming poll.
President Wickremesinghe’s allies have said the current IMF-led reform agenda could be derailed if the deal with the global lender is revised.
“Those can’t be changed under any administration in future,” Weerasinghe said referring to the key IMF goals.
“But within that how we are going to achieve those objectives for example revenue enhancement or primary surplus achievement, there could be different means and ways to achieve same target That’s up to every review.”
“If you look at the first review, second review, and third review, there has been changes in every document. Likewise, it is a continuous review process once every six months depending on the situation, depending on what we see as the best policies.”
“Any government, Ministry of Finance, Central Bank can negotiate and agree to a different terms and conditions in the short term. But overall, the key one is to restore the debt sustainability in the medium to long term and ensure the economy is growing at a reasonable pace, ensure there is fiscal sustainability, ensure monetary sustainability, and ensure financial stability. Those are the key ones.”
He said in addition to the key targets there are other reforms like curbing corruption and increasing social safety nets that need to be fulfilled.
“What our position here is that within that there has been reviews all the time. It (the IMF agreement) is not fixed for the next 10 years or not something that is fixed for next 4 years or not fixed something for the next 1 year.”
“If you look at the programme every six months, there are changes from one to another. Those kinds of changes can happen subject to overall path, direction should remain as it is.
Weerasinghe also said the country could face external challenges possibly from petroleum price hike, global uncertainty, and geopolitical issues.
“Those can come from the external sector, outside the country. Those also could be challenges. One can be global monetary policy. if there is a different expectation, there could be market instabilities and capital flows movements,” he said.
“But basically, what I see as challenge is to continue the same policies going forward irrespective of administrations. That’s the key challenge.” (Colombo/May 7/2024)