IMF tranche validates current reforms
With time running out to close the deal with international sovereign bondholders (ISBs), on debt restructuring, economists say Sri Lanka may agree to whatever is presented to them by the creditors.
If a suggested haircut is low, they said those who bought the ISBs at a deep discount stand to gain huge capital gains. “It all depends on the haircut. It is important for Sri Lanka to think about debtor/creditor justice,” an economist said.
Dr. Priyanga Dunusinghe, Economist, University of Colombo pointed out that compared to pre-COVID times, the creditors are focused on getting into agreements and concluding debt restructuring with countries like Sri Lanka. This is owing to many other countries in danger of falling into debt default, he added. Owing to multiple wars like Israel-Palestine and Russia-Ukraine, post-pandemic economic issues, the inflationary situation in Europe etc, 54 nations are under debt stress, according to a UNDP report. Hence, creditors are apprehensive to go on new debt restructuring and are keen to conclude existing ones.
Dr. Dunusinghe added that private creditors had expressed concerns over the agreement the government will enter into with them, especially with different political parties in the country having various perspectives. “It took four years in Zambia, which is a low-income country, to conclude debt negotiations and they had got 21 per cent to 28 per cent haircut. As a middle-income country, we cannot expect the same relief extended to us,” he said, pointing out that with its middle-income status, Sri Lanka can access financial markets, unlike Zambia.
Economists say that the US$336 million third tranche of the International Monetary Fund (IMF) extended fund facilities arrival may have given a new impetus to the current government to win the next elections.
“This latest win will spur them to tell their electorate that the policies upheld by the government have been applauded by the international community,” a senior economist told the Business Times on Thursday. However, he noted that a ‘credible and sustainable debt restructuring programme’ emphatically advocated by the donor agency is still at large. The next review for the IMF’s next tranche is in September.
Securing the third IMF tranche will be shouted from the stage tops, another economist said but noted that this cash has already been factored into the economy for the past year. “As such, the new cash coming in will make absolutely no impact on the outcome of the elections. The IMF disbursements were already in the pipeline. Only the ground realities in the country will determine the outcome of the election. The IMF cash will also not change the trajectory that we are currently in,” economist Dr Aruna Kulatunga.
Ahilan Kadirgamar, political economist and senior lecturer at the University of Jaffna said IMF money is ‘peanuts’. “The total of $3 billion for 4 years averages to about $60 million a month from the IMF. The inward remittances by migrant workers average between $300 million to $400 million a month. At times it goes up to $600 million monthly. I don’t understand why they are making a big deal out of this IMF money. We have a loan from the IMF for $3 billion and we need to pay an extra $ 2 billion in interest payments.”
He added that the election outcome will not be different due to the money coming in. “There is no growth in the economy. The government in power will take a big hit in the coming elections,” he said.
Murtaza Jafferjee, Chairperson Advocate Institute said the latest IMF tranche validates the current fiscal consolidation and reform trajectory. “We are only 1/3 of the way under the current programme – the trajectory gets steeper and the only way we can achieve it is to continue with the reform programme.”
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