IMF in two minds on bailout loan to Sri Lanka, economists say

The International Monetary Fund (IMF) is in two minds in granting a bailout package under its Extended Fund Facility (EFF) as Sri Lanka is still to restore political stability and start its massive external debt restructuring process, several local and international renowned economists said.

Sri Lanka is in a death spiral in an economic downturn, renowned economist Steve H. Hanke, Professor of Applied Economics at the Johns Hopkins University in Baltimore, Maryland said adding that the country’s inflation is now at 122 per cent year-in-year.

In a twitter message, he noted that things are so bad for the country that even IMF refuses to offer Sri Lanka a bailout loan. Sri Lanka has had 16 IMF programmes. None has worked.

The IMF recently warned that the crisis-ridden island nation needs to do more on debt restructuring and restore political stability before entering into an agreement on a comprehensive economic programme to correct the macroeconomic imbalances, restore public debt sustainability, and realise Sri Lanka’s growth potential.

The IMF also warned that high fiscal deficit had to be reduced, as well as taming rising inflation. Since revenue was weak, far-reaching tax reforms were urgently needed to achieve these objectives, it added.

Sri Lanka has to implement all these painful policies. The advantage of getting into an IMF programme and implementing these policies is that it will give foreign investors more confidence in the country, eminent economist Dr. W.A. Wijewardena said. (Bandula)