IMF bail-out package for SL seen as unavoidable

IMF bail-out package for SL seen as unavoidable
December 25, 2015, 9:52 am

By Hiran H.Senewiratne

The rise in global interest rates in the wake of the US Federal Reserve interest rate hike, makes unavoidable for Sri Lanka a bail-out package from the International Monetary Fund (IMF), top economist Professor Razeen Salley said.

"IMF doesn’t have confidence in the Lankan government, in particularly its ministry handling the country’s finances, as the maiden budget of the national unity government has ignored fiscal consolidation — one of the top conditions imposed by the lender when  extending support, Professor Salley said at a recent seminar organized by the Ceylon Chamber of Commerce.

In 2009, Sri Lanka was bailed-out by the IMF from a balance of payment (BOP) crisis—which was triggered by excessive money printing to support subsidies—through a US $ 2.6 billion Stand-By-Arrangement (SBA).

He said ISIS rebels creating greater instability in the Middle East could also hurt Sri Lanka’s economy.  However, the message sent out by Budget 2016 could make the dialogue with the IMF for a potential SBA facility problematic, as the budget seriously lacked fiscal consolidation.

Professor Salley, Visiting Associate Professor at the Lee Kuan Yew School of Public Policy, National University of Singapore, pointed out that Sri Lanka has a culture of acting irresponsibly over its finances and then expecting to be bailed out by the IMF. He stressed that continuing this vicious circle of resorting to the IMF is very damaging.

"It prevents a sinner from repenting and it’s another excuse to continue sinning, said Professor Salley. He noted that the last SBA facility was clearly political and was given under very easy conditions.

"The last government pretended it was reforming and the IMF pretended the government was reforming but it kicked the can down the road, he remarked.

"Sri Lanka cannot expect the IMF to come and sort out all its problems as most of the reforms must be carried out internally, he added.

Deputy Director, Institute of Policy Studies of Sri Lanka Dr Dushni Weerakoon said at a seminar that since the country’s foreign exchange reserve is dropping fast due to a high import bill, Sri Lanka will require a bail-out package from the IMF or any other institution.

"A bailout package to salvage the economy is inevitable next year because of foreign reserve deterioration, she added.

Next year would be a tough year for Sri Lanka because world commodity prices, especially those for tea, will also experience a slump due to manifold reasons, such as, a global financial crisis and insecurity in the international arena, due to terrorism and economic crises, she said.