Sri Lanka needs to stick to IMF programme to overcome economic crisis: Central bank guv

Sri Lanka’s central bank governor Nandalal Weerasinghe said that the country’s bankrupt economy has “no alternative” but to adhere to the existing $2.9 billion IMF bailout program.

This comes in response to inquiries about the possibility of renegotiating the terms of the four-year program, following claims by opposition parties that they would seek to renegotiate conditions for the IMF’s $2.9 billion bailout package.

The International Monetary Fund (IMF) approved the release of the second tranche worth $337 million to Sri Lanka earlier this month.

“There is no alternative. The fact that we attempted alternatives was why we are here (bankruptcy) now, Weerasinghe told reporters on Friday. We have to go in the same path, say, if the period of debt restructuring allowed is 10 years if they (the opposition) want to change it, the creditors can say, we don’t support this anymore. If we were to leave the programme, we would have to pay $6 billion a year in repayments, Weerasinghe said.

Weerasinghe was repeating what President Wickremesinghe said on December 17. There was no alternative to the IMF programme for the cash-strapped island nation to get out of its economic bankruptcy, Wickremesinghe, who is also the Finance Minister, said as he responded to the strong criticism from the opposition to the reforms.

The main opposition Samagi Jana Balawegaya (SJB) has vowed to renegotiate the IMF bailout claiming that the conditions attached to it that were agreed by the president had heaped economic hardships on people.

As the finance minister, Wickremesinghe was the lead in the IMF negotiations and introduced tough economic reforms such as increasing personal taxes and high utility tariffs.

Further, a higher Value Added Tax net is coming into effect from January 2024 even covering items, such as fuel, which had been VAT-free.
Wickremesinghe insists that his method which brought in the IMF bailout was the only method to bring long-term relief although it will cause short-term hardships.

Weerasinghe, the central bank chief, said renegotiating does happen under each review of the IMF. There was renegotiation after the first review and it will be reviewed at the time of the second review too, he said.

It was important to maintain the IMF programme to receive international support to solve the crisis, Weerasinghe said regarding the World Bank and the Asian Development Bank (ADB) support the island’s economy had received since inking the IMF deal.

After it was hit by its worst economic crisis in history in 2022 when its foreign exchange reserves fell to a critical low, Sri Lanka went in for what the World Bank described as foundational reforms to restore macroeconomic stability and mitigate the impacts on the poor and vulnerable aided by private sector-led recovery.

With inputs from PTI.