Columns

Foreign assistance is urgently needed for the country’s economic survival. This has to be followed by an Extended Fund Facility (EFF) from the International Monetary Fund (IMF) to stabilise and revive the economy.

Uncertainty

There is a great deal of uncertainty at present on the prospect of the country obtaining bridging finance that is vital for the country’s economic survival. There is also uncertainty that the IMF would approve an Extended Fund Facility(EFF).

Bridging finance

There is considerable uncertainty about obtaining bridging finance that is needed immediately for the economy to function. The country has reached a state of a virtual shutdown without diesel, petrol, kerosene and cooking gas.

Foreign assistance is required urgently for the survival of the country.

The economy is almost shut down without diesel for agricultural and industrial production and the transport of workers, goods and services.

Tea production is hampered without transport of green leaf and closure of factories for want of fuel. Industries have come to a grinding halt. Livelihoods are threatened, and hunger and starvation is increasing.

Humanitarian aid

Fortunately, there is humanitarian assistance from international organisations such as the United Nation’s World Food Programme and UNICEF, and several countries. However, there is no financial assistance to enhance the country’s reserves to import essentials.

Fuel imports

There is considerable uncertainty as to how and when adequate fuel supplies would be obtained. There was a glimmer of hope that the Government had obtained fuel from Malaysia and is expecting fuel from India.

Doubtful

Yet, there was skepticism that fuel will arrive as recent expectations of fuel shipments have not been realised. Given the recent experiences of such expectations not being realised, there was doubt and uncertainty about it materialising.

No fuel

As I write on Wednesday, June 6, news just in is that the shipment from Malaysia has been cancelled.

Survival

Previous columns have pointed out that the immediate need is assistance for the country’s survival. Funds are needed to import bare necessities of food and fuel for livelihoods and for the functioning of the economy that has come to a grinding halt.

This has aggravated the economic difficulties and worsened the country’s balance of payments and foreign reserves.

Hunger

The prospects of mass hunger and starvation have to be averted with the provision of food to those without incomes. Several international organisations, countries and voluntary organisations, and even individuals, have pledged support for food relief.

Among them are the World Bank, UNICEF andthe World Food Programme (WFP). These have initiated programmes to provide food for the needy.

Countries

The United States, Japan, Britain, Canada, China and India, among others, have pledged assistance to relief programmes or gifted food. This is especially so with respect of food aid from China and India.

Indian assistance

India’s assistance of more than US$ three billion has been substantial and multifaceted. It has prevented food shortages and fuelled the economy.

However, the time has come when questions are being asked in India as to how Sri Lanka will be able to repay the credit that has been given. Consequently, a tapering of Indian assistance is likely.

IMF

The most significant and long-term financial assistance was expected from the IMF. The Government expected adequate bridging finance from it to tide over the grave difficulties facing the country. This was to be followed by an arrangement to have an EFF.

Conditions

The Government recognised that such an arrangement with the IMF would require the imposition of difficult conditions that would include monetary, fiscal and structural reforms of the economy. Therefore, a delay in obtaining the EFF was expected.

However, the prospect of such assistance has been dimmed by the IMF condition that the country should demonstrate its debt repayment sustainability.

Debt sustainability

Given a foreign debt of more than US$ 51 billion and a repayment obligation averaging around US$ five billion annually for the next five years, this is a difficult condition to fulfill.

IMF statement

The IMF statement at the conclusion of the consultations on June 30 portends many difficulties. While stating its willingness to provide assistance, it has stressed the need for debt sustainability, accountability, transparency, adoption of internationally accepted good practices, and elimination of corruption.

Concluding statement

The IMF’s statement at the conclusion of the consultations said that “discussions focused on designing a comprehensive economic programme to correct the macroeconomic imbalances, restore public debt sustainability, and realise Sri Lanka’s growth potential. Discussions advanced substantially during the mission, including on the need to reduce the elevated fiscal deficit while ensuring adequate protection for the poor and vulnerable.”

“Given the low level of revenues, far-reaching tax reforms are urgently needed to achieve these objectives. Other challenges that need addressing include containing rising levels of inflation, addressing the severe balance of payments pressures, reducing corruption vulnerabilities and embarking on growth-enhancing reforms.”

Can the current Government meet these conditions?

Corruption

The reference to reducing corruption is intriguing. The IMF statement implied that the Sri Lankan government was corrupt and did not follow good accountable practices.

United States

Soon after, on June 2,the United States’Foreign Relations Committee said: “Any agreement with Sri Lanka must be contingent on CBSL (Central Bank of Sri Lanka) independence, strong anti-corruption measures and promotion of the rule of law. Without these physical reforms, Sri Lanka could suffer further economic mismanagement and uncontrollable debt.”

Impact

This position of the US would influence not only the IMF. It can also influence other countries like Canada, Britain, Japan and Australia, and also the European Union (EU).

The implication of this stance is that the country does not have a credible government that could be trusted with funds and would implement reforms.

The critical question is whether there is a government in Sri Lanka that can inspire confidence internationally. The answer is surely no.

No confidence

It is because we have a Government that has lost confidence that western governments have been cautious to add a caveat when they choose to provide humanitarian assistance by saying “to help the people of Sri Lanka.”

The latest is Canada, which is funnelling its assistance through international agencies. So did Britain. The US and IMF assistance should be channelled in a manner that ensures accountability.

Reforms

The need for significant fiscal reforms that will enhance government revenue and curtail government expenditure is imperative. The need to reform state owned enterprises is a vital component of such reforms. Can the current government implement such reforms?

The severity of the hardships and the inevitable unpopularity of the reforms will be seized by the Opposition to discredit the Government. It will increase the current overwhelming unpopularity of the President and his government. It will also make the next government impotent to implement the reforms and revive the economy. Such is the doomsday scenario facing the country.

Conclusion

Only an all-party national government comprising of capable ministers in a compact cabinet of around 15 ministers could adopt the needed economic reforms and obtain the essential international assistance.Is this possible?