The International Monetary Fund (IMF) this week praised the government for maintaining set targets under the US$2.6 billion credit facility, but conceded that if a new government (new party) emerged after the next round of elections, fresh discussions on the programme would have to be held.
The fund also warned that although foreign reserves are rolling in, there is a sharp difference between what is borrowed (sale of bonds, etc) and what comes through as actual earnings (exports/migrant remittances).
“… Money that is borrowed is very useful. It boosts reserves and gives the Central Bank flexibility in the short run. But there’s always the risk that that money could flow out if international investors change their minds,” noted Koshy Mathai, IMF Resident Representative in Sri Lanka, in a (telephone) press conference on Monday.
Asked by the Sunday Times what would happen if the government changed, Mr Mathai, in his first briefing to the local media after arriving a month back in Colombo, said if the situation changes (next year) and a new party and administration is in power, “then we will, of course, discuss their views on the economy with them. But for now, we have the current administration’s assurance that policy commitments on the fiscal front and on other fronts are in line with what they said they would be when the programme was approved.
Mr Mathai responded to a range of questions dealing with elections, a possible new government, delay in disbursement, performance, pay hike, reserves and targets.
The previous week, the IMF told New York-based Human Rights Watch (HRW) that it shared concerns on Sri Lanka’s human rights situation, but nevertheless noted that the Sri Lankan people should not be held responsible and need (economic support).
In a November 5 letter to HRW, IMF Managing Director Dominique Strauss-Kahn said the Sri Lankan economy is facing a serious crisis and regardless of one’s opinion of the human rights situation in that country, the collapse of the economy cannot be considered a reasonable outcome.
“The people of Sri Lanka, and especially those who are most vulnerable, cannot be held responsible for the current situation. Our role now is to do everything possible to prevent a collapse, the effects of which would be catastrophic for the people, and especially for the poorest parts of the population,” he said in response to an October 14 letter by HRW Asia division director, Brad Adams.The IMF chief said, “Like you, I share the distress of the refugees. The image of those suffering children and of those families set adrift is to me intolerable. The fact is, however, that the economic crisis would only worsen their situation.”
He said the aim of IMF support is to provide the resources necessary to prevent a full-blown economic crisis, contribute to reconstruction efforts, and sustain social spending aimed at protecting the poor. But Mr Strauss-Kahn noted; ‘This in no way prevents the fund from putting in place the safeguards needed to ensure that the resources provided are used correctly’.
During Monday’s press conference, Mr Mathai said the fund hasn’t been informed about the proposed wage hike announced by the President and added that these issues will be discussed by a fund mission led by Brian Aikens, head of the Sri Lanka Mission (based in Washington), who was due to arrive this week for negotiations on the third tranche. “… Details of the announcement are not even absolutely clear within the government itself. So we ourselves don’t yet have an assessment of what the impact would be on the budget, but we certainly look forward to discussing it with the government.”
But he said the IMF was happy with the government performance so far, which is in line with the programme and set targets.
The IMF approved the second installment of the credit facility last week after the government said, in an October 30 letter to the fund, that despite the Vote-on-Account (temporary budget), which would delay planned structural fiscal reforms as previously scheduled including, the Mahinda Rajapaksa administration is committed to achieving a budget deficit target in 2010 of 6 percent and other targets (after the elections).
“We will present a full year budget for 2010 to Parliament in line with our commitments and this will be a new structural benchmark for end-April 2010,” said a confident State Finance Minister Ranjith Siyambalapitiya and Central Bank Governor Ajith Nivard Cabraal in the joint letter.
Asked for the party’s views on the IMF facility if the UNP wins the next poll, UNP Parliamentarian Kabir Hashim said the party won’t ‘stoop’ to IMF conditions. “We will have to discuss the facility (all over again). We will enforce fiscal discipline cut wastage and corruption, raise incomes and reduce the cost of living. What can be saved from wastage and corruption will go to reduce food costs,” he said.Mr. Hashim, an economist and who has spoken widely in Parliament on economic issues, said the government has agreed to very short-term targets which cannot be achieved. “How can you achieve a budget deficit target of 7 percent by end 2009 when in the first six months it was over 10 percent?” he asked. |
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