Budget 2024: Do-or-Die walk with IMF

Balancing a budget usually entails balancing expenditures for the next year with income. You find deficit budgets, surplus budgets or balanced budgets. Budget 2024 presented on Monday seemed more one of balancing expectations – of the International Monetary Fund (IMF) and the citizens.

The expectations are high on both sides. The IMF has given the Government a road map for economic recovery. A Technical Assistance Report – Governance Diagnosis Assessment – has been provided hoping the Government will follow it to emerge from the bankruptcy of last year.

It is focused on corruption vulnerabilities and governance weaknesses linked to corruption, public financial management and public procurement along with a string of other ‘Things to do’ measures. The IMF also wants the Government to find the money, any which way it can, other than printing it, so that its expenses match its revenue collection.

On the other hand, trade unions and some professional associations are unwilling to tighten their belts any more, misreading the relative stability that this Government has brought about to mean the country can continue the way it was.

The President, who is also the Finance Minister was asked if this was an IMF Budget that he has presented. He said; "No, but it is in line with IMF's requirements." Somewhere else, he likened himself to a trapeze artist. UNP Governments have in the past faced the jibes of the Opposition that their budgets are drafted in Washington by the IMF and the World Bank. Such accusations have been met by denials with equal gusto. This time, it was no secret that the Government had to keep to its pledges to the Washington-based IMF if it wanted to stay true to its reform plan to see Sri Lanka ride the storm towards full economic recovery.

Budgets which were looked forward to with great excitement, anticipation and trepidation all in one decades ago, lost their significance ever since the concept of 'Budget by Gazettes' became a common practice. Price increases and taxes were increased and rarely decreased by midnight gazettes, often as a prelude to what later was to become 'sunshine budgets'. This time too, fuel, electricity, water and VAT (Value Added Tax) were raised before the Budget.

One other factor why the Budget doesn't receive its due importance is that its proposals never get implemented in full in the ensuing year or even thereafter. Those who prepared budgets in the past are accustomed to the many requests that come their way from departments and ministries for allocations. Many of them are accommodated to get the Budget through the Cabinet. Grandiose plans with all good intentions get into the Budget only to fall by the wayside. A recent survey showed that some of last year's proposals were orphaned with no parentage. Sometimes it is wondered if it is better to limit the scope to what is realistically achievable than raise false hopes.

As the President said during his presentation, it was due to the space created by the debt-restructuring process supported by the IMF that the Government – and the country – was able to find the resources for whatever relief measures have been given. The fact lost on unions is that the country is not paying back the mountainous foreign loans it has taken. Negotiations with foreign creditors are expected to go on right through next year and up to 2026.

The IMF appraisal report shows Sri Lanka's external reserve assets are projected to grow from a meagre USD 1.7 billion last year when the country had to declare itself bankrupt to a record USD 14 billion by 2027, despite current account deficits from now till 2027. It is, therefore, almost Hobson's Choice that the country cannot abandon the IMF's reform plans. With 2024 being an election year it will give the citizens some relief and a breather from the stringent reforms, which include the divesting of non-performing SOEs (state-owned enterprises). Yet, the economy has to be within the parameters of the IMF programme.

The vastly positive outlook for Sri Lanka given by the IMF is based on a turnaround in the Sri Lankan economy to grow faster than the forecasted 3.1 percent from 2023-2027, but it also depends on the Government's capacity to press forward with its IMF-backed reforms.

In an editorial on August 27 this year, we analysed this positivity as a proactive move by the Western-backed IMF to wrest the Chinese initiative in having a disproportionate influence over Sri Lanka and its economy in recent times. The projected disbursement of around USD 1.6 billion per annum from multilateral lenders during the period of the IMF programme is "very unusual and distinctive" given the size of Sri Lanka's GDP.

On Tuesday, President Ranil Wickremesinghe pointed to the recent investment by the US private sector in the Colombo Port West Terminal. He asked doubters of Sri Lanka's recovery process if this is not a show of confidence in Sri Lanka's future. That the investment is in a critical, big power contested area such as the Colombo Port cannot be lost on strategic studies students.

It is also significant that a senior Chinese Communist Party member from the Yunnan/Guizhou province, home to China's 'Big Data Valley' and President of the powerhouse All Women's Federation dropped in for talks after representing her country at the pro-China Maldivian President’s inauguration this week.

What the IMF would be concerned about is if its faith in putting Sri Lanka back on track is not reciprocated with the country's faith in the IMF, and subjected to the vagaries of political crosswinds. A radical change in electoral politics could scuttle its projections leaving Sri Lanka in limbo without an alternative economic programme.

Soon after the Budget was presented, local tax institutions and banks began analysing the proposals among Colombo’s business elite together with government officials. Finance Ministry seniors made some impressive PowerPoint presentations depicting Sri Lanka’s bankruptcy in 2022; stability in 2023 and Sri Lanka of the future with the ongoing IMF reforms.

The Government's propaganda machinery might do well to take this message to the rest of the country where daily life is even more than just tough; where resentment remains high and where the people are prone to short memories of the horrors of 2022 while having expectations that the Government would and should deliver the goods, they believe, is their right.