IMF Extends Financial Umbilical Cord to Sri Lanka Yet Again
By Julian Jansen
In a move that seems to play out like a recurrent saga, the Executive Board of the International Monetary Fund (IMF) has once again extended its financial lifeline to Sri Lanka, completing the second review under the seemingly endless 48-month Extended Fund Facility (EFF) Arrangement. With an air of weary resignation, they’ve granted the authorities access to a whopping SDR 254 million (approximately US$336 million), adding to the ever-swelling coffers of financial support, now totaling a jaw-dropping SDR 762 million (about US$1 billion). The IMF’s statement, a ritualistic recitation of numbers and consultations, also includes the obligatory nod to the 2024 Article IV Consultation with Sri Lanka, as if it were an afterthought in a bureaucratic checklist.
Ah, but let’s not forget the backstory: the EFF arrangement, birthed amidst much fanfare on March 20, 2023, to the tune of SDR 2.286 billion (395 percent of quota or roughly US$3 billion). Since then, it’s been a series of reviews and disbursements, with the first review completed back on December 12, 2023, handing over another SDR 254 million (about US$337 million) to the ever-grateful authorities.
What’s the goal of this financial lifeline, you might ask? Well, it’s a laundry list of noble intentions: restoring macroeconomic stability, ensuring debt sustainability, protecting the poor and vulnerable (because who doesn’t love a good humanitarian angle?), shoring up external buffers, keeping the financial sector from capsizing, and, of course, throwing in a sprinkle of governance and growth potential for good measure.
But fear not, dear reader, for amidst the sea of economic jargon and financial acrobatics, there are glimmers of hope—or so the IMF would have us believe. Signs of economic recovery are supposedly on the horizon, with real GDP daring to expand by a modest 3 percent (y-o-y) in the latter half of 2023. Inflation, that perennial bugbear of economists, is being kept at bay at a measly 0.9 percent as of May 2024, while gross international reserves are puffed up to a respectable US$5.5 billion as of April 2024. And let’s not forget the cherry on top: a surplus in the primary balance, as tax revenue graciously climbs to 9.8 percent of GDP in 2023. Bravo, Sri Lanka, bravo.
But before we break out the champagne, let’s remember that the road to recovery is paved with good intentions—and more than a few potholes. Medium-term growth, we’re told, hangs precariously on the whims of policy settings, with bank credit feeling the squeeze and fiscal belt-tightening looming ominously on the horizon. And let’s not even mention the elephant in the room: the impending debt restructuring and the nail-biting uncertainty of post-election policy direction.
In the midst of this financial theater, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair, steps into the spotlight to deliver his lines. Cue the applause for Sri Lanka’s “strong performance” under the IMF’s watchful eye, with all the quantitative targets dutifully met (except for that pesky shortfall in social spending, but who’s counting?). Yet, beneath the veneer of praise lies a sobering truth: the economy remains as fragile as spun glass, with the path to debt sustainability resembling a tightrope walk over a shark-infested pool.
But fear not, for Mr. Okamura has a script to follow—a laundry list of recommendations to keep the show running. Fiscal sustainability? Sustain revenue mobilization efforts, finalize debt restructuring, and protect social spending. Monetary policy? Keep those inflation expectations in check and refrain from monetary shenanigans. Oh, and let’s not forget the importance of strengthening central bank independence—because nothing says financial stability like a little institutional autonomy.
And what of the future, you ask? Well, it’s a laundry list of reforms and structural adjustments, all aimed at unlocking that elusive long-term potential. Trade liberalization, labor reforms, state-owned enterprise efficiency—pick your poison, Sri Lanka, because the IMF buffet is open for business.
In the end, amidst the rhetoric and the rituals, one thing remains clear: Sri Lanka’s dance with the IMF is far from over. And as the curtain falls on yet another chapter of economic intrigue, one can’t help but wonder: will this tale end in triumph or tragedy? Only time will tell.
