KAS and the IMF
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Here is an interesting thought sent to FB readers by Nimal Dias -Jayasinha, a vociferous FB user, on the economy: “The stock market isn’t the economy. Billionaire profits aren’t the economy. The economy is whether you can afford rent, groceries and medical care without living paycheck-to-paycheck. And by that measure, it’s failing most people.”I came across this as I was collecting material on the International Monetary Fund (IMF) and felt this was a good way to start the conversation. The administrators and gurus at the Treasury have been preoccupied with Trump’s crippling tariffs with the rate of 44 per cent being the highest tax in the region, and may not be paying too much attention to IMF developments.
IMF bailout packages are ‘manna from heaven’ for its recipients. In South Asia, Sri Lanka, Pakistan, Bangladesh, Nepal and the Maldives, are enjoying IMF funding programmes.
The next IMF disbursement for Sri Lanka of US$334 million is expected in June/July but would be subject to increasing electricity rates, one of the conditions.
There have been 17 IMF programmes including the current one. Sri Lanka has been in 16 IMF programmes since 1966 and failed to complete almost half of them (7 of 16), according to the IMF. Even past programmes that were completed saw huge departures from the original plans, which were excused by the IMF to move the programme forward, but they were never completed as IMF prescriptions were harder to implement and thus fell by the wayside.
Sri Lanka is awaiting the IMF executive board approval and if that comes, the country would get a combined total of $1.34 billion.
On the flipside, if Sri Lanka fails to follow the reforms promised by the Government in consultation with the IMF, a second restructuring is likely to happen in 2028 when the Government has to pay off delayed/restructured loans. Inevitably – as seen in previous programmes – the country would have to borrow in the international market as there is a scarcity of dollars in local foreign reserves.
I came across a speech made by the Treasury Secretary warning that Sri Lanka cannot resort to another programme. But before I examined his remarks, the phone rang. Calling on this Thursday morning was my jolly-mood economist friend, Sammiya (short for Samson).
“I say there is not much discussion on the IMF in the media these days presumably because the administrators were assessing the ripple effects of the US tariffs, which in Sri Lanka’s case is a 44 per cent tax on entry into the US,” he said. “Another issue is GSP+ in which a team from the EU had discussions with Sri Lankan authorities,” I said.
“Our next round of GSP+ concessions will be in 2028 and for Sri Lanka some of the steps promised by the Government but not kept are dismantling the Prevention of Terrorism Act and providing more bargaining power to workers and allowing them to organise (into unions, etc),” he said.
Economists feel that there is something missing in the new Government’s performance. “In some cases they seem to be lost in dealing with sensitive economic issues,” one economist said.
At this point, I walked to the kitchen to see whether there was some food for breakfast. On the table were a few ‘kimbula bunis’. Picking one up and a second mug of tea, I looked out of the window to find the trio discussing another ‘crisis’: the shortage of salt in the country.
“Aney mae, mokada apey ratey lunu hingayak thiyenney (I say why is there a shortage in the country),” asked Mabel Rasthiyadu.
“Aanduwa kiyanawa eh Hambantota saha Puttalam lunu palam walata adika varshawa thibuna nisa, okkoma lunu muhudata hedila gihilla kiyala (According to the Government, this is because heavy rains flooded the salterns in Hambantota and Puttalam draining all the salt to the sea),” said Serapina.
“Eth aanduwata salasmak thiyenna oney-nae buffer thogayak thiyaganna mae wagey hadisi avastha walata. Pita ratin gena lunu wala mila harima adikai (But the Government must have a plan to keep buffet stock in hand during such emergencies. The price of imported salt is exorbitant),” Kussi Amma Sera said.
Coming back to a speech made by Treasury Secretary Siriwardene (the Treasury Secretary and Central Bank Governor Dr. Nandalal Weerasinghe are perhaps one of the best economic teams and the NPP administration was wise in retaining them), he was quoted as saying the IMF’s $3 billion funding package should be the country’s last such programme.
Mr. Siriwardene told the Inauguration Ceremony of the Master of Public Financial Management (MPFM) Degree Programme 2025/26, held recently at the CA Sri Lanka Auditorium, Colombo: “The current 17th IMF programme which includes an Extended Fund Facility (EFF) arrangement worth nearly $3 billion, should be Sri Lanka’s last IMF programme, after which the country must stand on its own feet as a resilient, sovereign economy.”
He said Sri Lanka should use this 17th IMF programme as a vehicle to implement necessary policies and reforms and protect hard earned gains.
Reiterating that the recent economic crisis was man-made, Mr. Siriwardene said in the past, when Sri Lanka faced macroeconomic shocks, after a brief period of stabilisation, the country made the mistake of reverting to irresponsible economic management.
“This is why the country has been through 17 IMF programmes since Independence. We repeatedly succumbed to the temptation of using fiscal and monetary stimulus to boost growth and generate jobs instead of doing the hard and painful structural reforms to unlock economic productivity, which is the true driver of sustainable growth. Therefore, continued discipline in macroeconomic management, and particularly public financial management, supported by the IMF programme, is essential,” he added.
Discussing some policy errors that had hurt Sri Lanka heavily, Mr. Siriwardene said the most significant such policy error was the tax policy changes in end 2019 along with other macroeconomic management failures at the time, such as excessive monetary financing, artificial management of the exchange rate and failure to implement cost-reflective energy pricing.
“These were all avoidable policy mistakes and this is why I continue to maintain that the recent economic crisis was a man-made crisis,” he added.
As I wound up my column today, Sri Lanka has many challenges with the latest tariffs issue being at the top of the agenda. Another problem this week was the closure of a garment factory by NEXT in Katunayake, with those workers facing an uncertain future.
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