Columns

The news that the IMF had reached a preliminary agreement with Sri Lanka on a four-year, $2.9bn bailout package would have come as a great relief to President Ranil Wickremesinghe and the Government that is struggling to keep the economy afloat after the mismanagement of the past few years.  

Economists have recognised this as only a first step in the long road to recovery and that there will be many hurdles to overcome before even a semblance of normalcy can be thought of.

The announcement on Thursday, by the IMF team in Colombo clearly laid down several conditions that would have to be fulfilled prior to the first tranch of the IMF package being received by the country.

According to IMF officials the staff-level agreement was subject to approval by its management and executive board and contingent on Sri Lanka securing debt relief from creditors and financing from multilateral lenders, as well as undertaking steps to reform its economy.

“Because Sri Lanka’s debt is assessed to be unsustainable, debt relief from Sri Lanka’s creditors will be required to assure debt sustainability,” said Peter Breuer, the IMF’s senior mission chief for the country. “Having a path to restore debt sustainability — so-called financing assurances — is necessary for approval by the IMF executive board, and additional financing from multilateral partners will be needed to close financing gaps.”

According to Masahiro Nozaki, another member of the IMF team, the government also needed to take measures to fight corruption, including improving fiscal transparency and financial management and introducing a stronger anti-corruption legal framework “There needs to be a government that has the mandate to carry out the reforms, and there needs to be buy-in by society to support the reforms and to move forward with them,” said Breuer.

Clearly much work has to be done in the days to come. Two particular conditions laid down by the IMF will have to engage the Government’s attention as both are within the country’s powers.

While debt sustainability will be dependent on the response of the country’s creditors, the issue of steps to be taken to address corruption vulnerabilities and a Government with a mandate to take difficult decisions regarding the economy are essentially within the sole purview of the country and its Government. Sri Lanka has earned a poor name for corruption in Governance and this has even prompted international bodies to take note of this feature of the Sri Lankan polity the Sunday Times of August 28, 2022 in its Editorial addressed this issue at length.

Referring to a news item in the previous week of the Sunday Times which reported that the World Bank had agreed to underwrite the import of urgently needed fertiliser, but with strict regulations to ensure a fraud-and-corruption-free process takes place, the Editor described the imposition of such conditions as a deplorable indictment of Sri Lanka’s collective reputation.

According to the Sunday Times as part of the process the World Bank will supervise records and other documents relating to the procurement process and the accounts were to be audited by those appointed by the Washington-based bank. It is the first time the World Bank is to introduce this supervisory mechanism in Sri Lanka.

The Editorial also draws attention to the fact that “ a majority of Sri Lankans may resent unwarranted foreign interference in its wartime human rights record, but there is no gainsaying they would welcome some external audit of its financial record, especially to identify those who have profited and wish to profit from foreign contracts at the expense of the long-suffering people “

Clearly the lesson in all this is that where systems fail to address issues prevalent in the country inevitably in an interdependent global environment external involvement in some form or the other will catch up with the situation.

Interestingly all the forces which make a great deal of noise when there is even a semblance of any foreign involvement in the country’s affairs have not raised a whimper of protest at the World Bank and IMFs conditions relating to corruption.

It is imperative that the Government comes up with credible anti corruption mechanisms as soon as possible. This will not only restore confidence among the international community but will also benefit the country in the long run.

The other condition that the IMF has raised is the issue of a Government with a mandate to implement the difficult decisions that lie on the road ahead. An all party or multi party Government or arrangement (as President Ranil Wickremesinghe calls it ) might address this issue at least for a short period. However, like the issue of corruption, it is an indictment of the polity in this country that the political parties have not been able to reach agreement on a collective programme of work to rescue the country from its crisis.

If even at this late stage agreement on at least a multi party government fails to be reached, a General Election to elect a new Parliament to meet the IMF condition of a “mandate” might become inevitable. (javidyusuf@yahoocom)