Not missing the IMF’s ‘woods’

 Not missing the IMF’s ‘woods’

This week, the International Monetary Fund (IMF) publicly said that even though Sri Lanka has achieved considerable economic recovery, the country is not out of the woods yet. The IMF stressed that therefore, it is important to safeguard those hard-won gains.

The Morning 17 Sep 2024

The IMF’s statement comes in a context where the country is getting ready for a crucial Presidential Election. It is crucial not only because it seeks to elect the next Head of the State. It is crucial because this is the first Presidential Election that is going to be held following a plethora of socio-economic changes, mostly for the worse, that sparked a renewed discourse about a system change concerning the country’s politics and governance.

“With respect to the upcoming Presidential Election, this is for the people of Sri Lanka to decide. From the IMF's position, what we see is a programme that has made significant achievements, but that it is important to safeguard these achievements to enable the country to fully emerge from one of its worst crises,” the IMF said.

As the IMF has aptly pointed out, while the people hold the power to decide what the country’s political trajectory would be like during the coming few years, when we look at the bigger picture, there is an economic recovery programme that should not be conflated with politics. The IMF agreement has become a key topic of discussion on Election stages – while some want to abolish it, some propose to amend it. But, some, including President Ranil Wickremesinghe, express confidence that the continued implementation of the IMF programme would benefit the country. He is not wrong. The IMF programme is not only a set of proposals and recommendations. It is also an eye-opener that showed Sri Lanka a number of things that it did wrong, especially when it comes to State revenue, savings, and expenses.

The IMF programme should not be just another political topic that gets distorted, debated, and ignored or highlighted when advantageous. It goes beyond opportunistic politics and day-to-day needs. It is the political authority’s duty to allow it to remain practical and scientific, which it should be if Sri Lanka is to benefit from it. Sri Lanka’s agreement with the IMF may be controversial, especially when it comes to the impacts of the agreement’s implementation on the general public. However, we see the results. While it has added to the people’s day-to-day plight, it has also improved the economy at a higher level.

“With respect to the upcoming Presidential Election, this is for the people of Sri Lanka to decide. From the IMF's position, what we see is a programme that has made significant achievements, but that it is important to safeguard these achievements to enable the country to fully emerge from one of its worst crises,” the IMF said.

That is why we should recognize that the IMF programme is not entirely a monster. However, for it to deliver the intended results and for Sri Lanka to counter its adverse impacts, Sri Lanka should look at it in a scientific and realistic manner. Political labels should not be how we assess whether the IMF programme is beneficial or not.

Sri Lanka must have a sustainable reforms-based agenda built up on the IMF programme. In other words, the country should have a national plan concerning the IMF programme that is not dependent on any particular Government’s needs, agendas, or ideologies.  Sri Lanka's recent economic stabilisation, supported by the IMF, underscores the necessity of a steadfast economic reform agenda. For the country to maintain and build upon this stability, it is crucial that reforms transcend political changes. Consistent adherence to a well-defined economic strategy ensures that policies promoting fiscal discipline, investment attractiveness, and sustainable growth remain intact, regardless of shifting Governments. This commitment not only stabilises the economy but also secures a foundation for future prosperity, benefiting all Sri Lankans and reinforcing their trust in economic governance.

If there are issues or concerns concerning the IMF programme, they should be dealt with not through a political approach, but a scientific one. Instead of trying to amend or revoke the IMF programme out of spite, just to hurt political rivals, the political authority must counter the programme’s flaws, inadequacies, and harmful aspects. Politicians’ ill-advised plans for the IMF programme should not reverse the little progress that the country has achieved⍐.

Economy grows by 4.7% in 2Q, powered by industrial sector

Tuesday, 17 September 2024 FT

• Accounting for 25.5% of economy, industrial activities grew by 10.9%; dominant services sector
• grows by 2.5% and agriculture by 1.7%
• DCS cites low inflation and interest rates, lifting import restrictions as reasons for favourable
• impact on almost all manufacturing activities in 2Q

Sri Lanka’s economy grew by 4.7% year-on-year (YoY) in the second quarter of 2024, continuing the upward momentum seen since September 2023.

However quarter-on-quarter 2Q performance was lower than 5.3% growth achieved in 1Q.

The Department of Census and Statistics (DCS)  said 2Q positive growth was driven by the industry sector accounting for 25.5% of the GDP, growing by a high 10.9% from a low base, whilst the service sector with a share of 55.4% of the GDP expanded by 2.5% and the agriculture accounting for 10% of GDP expanded by 1.7% as against the second quarter of last year.

In addition, taxes less subsidies on products accounting for 9.1% of the GDP grew by 2.8% in the second quarter of 2024, announced.

“Sri Lanka experienced lower inflation, declining interest rates and eased import restrictions in the second quarter of 2024,” the DCS said, adding that these factors helped businesses access working capital and raw materials more easily, contributing to economic growth.

It also added that despite heavy rainfall affecting crops like paddy, tea and rubber in 2024, the rain boosted hydroelectric power generation, adding value to the electricity industry.

The DCS also highlighted that rising tourist arrivals in the second quarter helped sustain growth for the fourth consecutive quarter, starting from the third quarter of 2023.

Following is a brief commentary on the sectoral performance;

Agricultural activities

In the second quarter of year 2024, the agriculture activities have recorded an expansion of 1.7% when compared to the 4.2% of growth recorded in the same quarter in the year 2023.

The reported 1.7% growth in the agricultural activities were supported by the expansions in ‘Growing of cereals’ (22.7%), ‘Animal production’ (8.6%), ‘Marine fishing and marine aquaculture’ (7.7%), ‘Growing of fruits’ (3.9 %), ‘Growing of vegetables’ (3.8 %), ‘Fresh water fishing and fresh water aquaculture’ (3.6%), ‘Growing of spices’ (3.0 %), ‘Growing of oleaginous fruits’ (1.4%) and ‘Forestry and logging’ (0.7%).

However, some agricultural activities, namely, ‘Plant propagation’ (23.7%), ‘Growing of rubber’ (18.7%), ‘Growing of tea (8.8%), ‘Growing of other perennial crops’ (4.1%), ‘Growing of coffee, cocoa and other beverages crops (4.0%),‘Agriculture supporting activities’ (3.7%), ‘Growing of sugarcane’ (2.4%) and ‘Growing of rice’ (1.2%) reported contractions in the second quarter of 2024.

Industrial activities

All the Industrial activities together reported a 10.9% growth in the second quarter of 2024compared to the reported 11.7% decline in the second quarter of the previous year.

The ‘Construction industry’ and ‘Mining and quarrying’ industries returned with positive growths of 15.5% and 21.5% respectively in this quarter. Besides, the overall manufacturing  industry grew by 7.0% during the second quarter 2024 with the expansions of most of the manufacturing sub activities, namely, ‘Manufacture of basic metal and fabricated metal products’(31.6%), ‘Manufacture of chemical products and basic pharmaceutical products’ (24.0
%), ‘Manufacture of wood and wood products’ (21.1%), ‘Manufacture of furniture’ (8.0%), ‘Manufacture of rubber and plastic products’ (7.0%), ‘Manufacture of paper and paper products’(6.8 %), ‘Manufacture of textiles, wearing apparel, leather and other related products’ (6.6%), ‘Manufacture of other non-metallic mineral products’ (5.5 %), ‘Manufacture of food, beverages and tobacco products’ (5.0%) and ‘Other manufacturing and repair and installation of machinery and equipment’ (3.7%). In the meantime, only two manufacturing sub activities, namely ‘Manufacture of coke and refined petroleum products’ and ‘Manufacture of machinery and equipment’ reported contractions of 13.4% and 2.5% respectively during the second quarter of 2024. Among other industrial activities, ‘Electricity, gas, steam and air conditioning supply’ and ‘Water collection, treatment and supply’ grew by 21.9% and 4.3% respectively in the second quarter of 2024.

Services activities

Most of the services activities recorded expansions in the second quarter of 2024 and collectively reported a 2.5% growth compared to the reported 0.5% contraction in the second quarter of the previous year.

Among the services activities, ‘Accommodation, food and beverage serving activities’ (21.1%),‘Insurance, reinsurance and pension funding’ (14.1%), ‘IT programing consultancy and related activities’(14.0%),‘Postal and courier services’ (13.3%), ‘Telecommunication’ (6.7%), ‘Financial service activities’(5.7%), ‘Programing and broadcasting activities’ (5.3 %), ‘Real estate activities and ownership of dwelling’ (4.2%), ‘Education’ (2.4%), ‘Professional services’ (2.3%), ‘Transportation of goods and passengers including warehousing’ (1.8%), ‘Wholesale and retail trade’ (0.8 %) and ‘Other personal services’ (0.6%) reported positive growth rates in the secondquarter of 2024. On the contrary, only two services activities declined during this quarter, namely ‘Public administration and defence’ (3.1%) and ‘Human health services’ (2.3%)⍐.