Compliance with IMF conditions crucial for economic recovery
Compliance with the International Monetary Fund’s (IMF’s) conditions is the only way forward for economic recovery and growth. The discontinuance of the IMF arrangement would plunge the country into an economic crisis much worse than the one we are recovering from.
Implementation
The implementation of the 16 reforms in the Governance Diagnostic Assessment (GDA) of the IMF is imperative for the continuation of the IMF’s Extended Fund Facility (EFF) and foreign assistance.
Implementation
Implementing the IMF reforms and achieving the financial targets are enormously challenging. This is especially so in respect of eradicating corruption, which is the root cause of our economic crisis.
The present government, dependent on the support of the SLPP, is incapable of eradicating and reforming corruption. Is there a new political configuration that would be equal to the task?
Economic recovery
Implementation of the IMF reforms is imperative for the continuation of the IMF facility, further stabilisation of the economy and economic growth. Due to the failure to achieve the economic targets, the slow progress in the implementation of reforms and widespread corruption, the IMF has delayed the granting of the second tranche of the
EFF. Furthermore, the IMF has expressed concern over the slow or non-implementation of reforms, widespread corruption and fiscal slippage. Despite these shortfalls, indications are that the second tranche will be granted, though delayed.
Approval of EFF
The approval of the second tranche of US$ 299 million has been delayed. However, in spite of the inadequate progress of the reforms by the government, the second tranche is likely to be given after some delay.
The continuation of the IMF programme is, however, dependent on implementing reforms. The inability or unwillingness to implement the reforms could have serious economic repercussions.
Fiscal slippage
Owing to an estimated fall in government revenue by 15 percent by the end of this year, a reduction of the fiscal deficit to 10 percent of GDP is unlikely. In addition, the slow progress on state enterprise sector reforms and the inability to minimise corruption could once again stall the IMF programme and plunge the economy into a worse crisis than before.
Press briefing
Unlike the IMF media briefing, where it said the government had made progress in implementing reforms, though there was much more to be done in implementing reforms and increasing revenue collection, the IMF Governance Diagnostic Review was a forthright critique and condemnation of widespread corruption and inaction to curb it.
Diagnostic Review
The IMF’s six-page, 16-point Governance Diagnostic Assessment was an exposure and condemnation of governance in the country. It condemned the country's widespread corruption and left no doubt that the root cause of the country’s economic crisis was widespread corruption. It implied that the country’s economy could not develop unless there were comprehensive reforms to eradicate bribery and corruption.
This was not a shocking disclosure to the public or even foreigners. That it came as part of the IMF review and its implications for continuing the IMF programme was disconcerting.
Corruption
The Governance Diagnostic Assessment said in no uncertain terms that corruption had permeated every level of government institutions, from top to bottom, and that a comprehensive reform of the system was essential to enable an economic recovery.
Deep surgery
The cancer of corruption has spread to all parts of the body politic and the nation’s administration requires deep surgery. Who would perform it?
Concerns
The IMF is concerned with a multitude of pressing issues. One of the primary reasons for the delay in disbursing the second tranche is the shortfall in government revenue and the sluggish progress in foreign debt restructuring. However, perhaps the most significant roadblock to financial recovery lies in the government’s persistent failure to address deep-rooted corruption. How could a legislature in which only 16 of the 225 members have disclosed their assets take action to eradicate corruption?
Political impediments
The impending elections are a serious concern, as political motivations could derail the reforms. The support of the SLPP for the reforms is inconceivable. However, there are a few realistic moves by some opposition parties that appear to have veered to the view that they would support the IMF programme with some modifications to lessen the burdens of the poor.
In Parliament
Dr. Harsha de Silva told Parliament in an impassioned speech: "The bitter pill of reform is the only way forward. Under a future government, discussions with the IMF will aim to revise certain aspects of the programme while implementing all 16 directives, charting a course towards a prosperous and corruption-free Sri Lanka.” The JVP/NPP has also said it would continue the relationship with the IMF.
Concluding reflection
The slow implementation of IMF reforms, the continuing inadequacy of revenue to narrow the fiscal deficit and widespread corruption are serious obstacles to the continuation of the IMF programme. If we are unable to fulfil the IMF conditions and the EFF is discontinued, as has happened on 16 previous occasions, the economic crisis we may face could be more serious than before. Can we make this a turning point in our history, or will we become a basket case?