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The IMF reached a staff-level deal with the government to continue its Extended Fund Facility (EFF) agreement and grant the third tranche of about US$ 330 million. This is likely to be disbursed around March-April next year.

The continuation of the EFF agreement is of vital importance for further stabilisation of the economy and increased growth momentum.

Changes

While some tax increases and social expenditures curtailment are likely to be modified, fiscal consolidation targets and measures for good governance would have to be implemented.

Improvements

When announcing the approval of the third tranche, the IMF Review Mission noted that inflation had decelerated, the economy had achieved growth in the second half of the year and gross external reserves had increased to US$ 6.1 billion at the end of September 2024.

Poverty

In spite of these improvements, poverty, hunger and malnutrition have increased; prices of essentials such as rice, eggs, coconuts and vegetables have risen sharply making the livelihoods of low-income earners unbearable. Hopefully, economic growth, modifications of the tax policies, and measures to reduce prices would alleviate poverty and reduce the severe hardships of the poor sooner rather than later.

Pragmatic policies

The continuation of the IMF agreement is an important step towards the resolution of the country’s economic problems. It is also an indication that the government intends to follow pragmatic policies rather than be committed to following ideological and impractical policies.

Opposition

This decision to continue the IMF arrangement has been criticised by opposition party leaders. They contend it was different from the election promise of discontinuing the IMF agreement. However, the JVP/NPP had veered to a position of continuing the IMF agreement with changes to reduce the burdens on the poor.

Important

What is important for the Sri Lankan economy is not the election promises of the government, but the adoption and pursuance of policies that would be conducive for the economic development of the country. The government has taken a pragmatic decision that is in the economic interests of the country. Hopefully, its other economic policies too would be guided by pragmatic considerations rather than impractical ideologies.

Apprehensions

There were apprehensions about the government’s economic policies owing to the JVP’s origins being Marxist-Leninist. Undoubtedly there are hardcore JVP members who are Marxists. On the other hand, the JVP/NPP has adopted pragmatic economic policies as evident in his policy statement and early actions.

Overcoming obstacle

The JVP had a serious obstacle to a parliamentary path to power owing to its genesis as a revolutionary party that believed in overthrowing the government violently. The two insurgencies that killed many lives and destroyed public property were a serious disadvantage to gaining support at an election.

Recognising this the significant step taken to be on the path of gaining parliamentary power was the formation of the National People’s Power (NPP). This ‘coalition’ or amalgamation reimaged the party as a democratic one. Intellectuals

Furthermore, the NPP was composed of professionals in many fields, including the Sri Lankan diaspora. The new movement gained momentum due to blatant corruption, misgovernance and deprivations in the past.

IMF agreement

The decision to continue the IMF’s Extended Finance Facility (EFF) and sign the staff-level agreement to obtain the third tranche is one of the pragmatic policies of the government as the continuity of the IMF programme is imperative for the further stabilisation of the economy and generating economic growth.

International confidence

Although the IMF’s financial assistance is modest, the IMF agreement inspires international confidence in the management of the economy and would spur foreign investment and finance from international agencies such as the World Bank, ADB, IFC and foreign governments.

In fact, there have already been such commitments from the World Bank, ADB IFC and the Japanese government. Much more foreign assistance is expected to boost the country’s reserves and exports.

Foremost challenge

The foremost challenge facing the government is the stabilisation of the economy and achieving growth.  The President’s policy statement at the opening of parliament recognised this and outlined several strategies to achieve this. The policies outlined were pragmatic rather than ideological. Yet achieving economic stability is no easy task.

Transformation

Sri Lankans could be proud of achieving a political transformation through a peaceful and orderly election. There are great expectations of the country achieving economic growth and developing an egalitarian society. However, this can be achieved through only hard work and discipline.

The commitment to eradicate corruption and reduce unnecessary expenditures are vital, but a host of other conditions are needed.

A transformation of the country’s work ethics and national unity is imperative. These are formidable tasks. Let us take the first steps to such a revolutionary transformation of society and economy.

Conclusion

The path to economic growth is a difficult and onerous one. The continuation of the IMF agreement and adoption of pragmatic policies are imperative to achieve growth and ameliorate the conditions of the poor and low-income earners. The President has outlined the policies of the government. Their implementation is difficult but imperative.