Re-negotiating IMF terms backed by a fresh mandate may be way out for the economy

The topic most on people's mind as they await the dawn of 2024 is how the Value Added Tax (VAT) is going to impact on the cost of living and therefore on their own lives.

The common consensus is it is likely to send the already high cost of living even higher. However, with the Government still putting the final touches to the list of items that will come under the VAT framework, the exact quantum of the rise in the cost of living will only be seen within the next few weeks.

That it is not a popular move is to state the obvious. Even former President Mahinda Rajapaksa who leads the Sri Lanka Podujana Peramuna (SLPP) issued a statement last week stating his opposition to the move. However, days earlier his Parliamentarians had voted for the VAT legislation helping the Government to make it law.

The Government for its part has justified the need to pass VAT legislation on the basis that the Government needs to increase its revenue. The Government is relying on the VAT component of taxes to reduce the gap between income and expenditure with a view to meeting the requirements of the International Monetary Fund (IMF) on whom it is relying on to extricate the country from bankruptcy.

Many laymen question whether the economy has in fact achieved stability as claimed by the Government or whether it is a false sense of complacency instilled in the people by the Government.

Both President Ranil Wickremesinghe and Central Bank Governor Dr. Nandalal Weerasinghe have cautioned that there is still a long way to go. The Governor says the IMF Programme must be continued if the final economic goal is to be reached.

“We need to go in this direction, during this period of ten years of debt restructuring. If that changes, they can also change their decision on the debt relief. So, if this is broken, they can say we do not support this anymore. We will have to repay US$ six billion a year in debt repayments,” said the Governor.

However, what is troubling the people is that despite the outward sense of normalcy created by the absence of queues and fuel shortages which characterised the Gotabaya Rajapaksa Presidency, they are burdened by an unbearable rise in the cost of living and economic deprivation in many forms.

That is why the Samagi Jana Balawegaya (SJB) has pledged to renegotiate the terms of engagement with the IMF to bring relief to the long-suffering people.

Dr. Nandalal Weerasinghe does not totally rule out this possibility. He says any government could renegotiate the programme with the IMF, but it would be required to follow the path chosen currently to get international support— whatever that means in economic terms.

If what the Central Bank Governor says is correct it will be a difficult but not impossible task for any future Government to renegotiate a more people friendly package from the IMF. If such a future Government is backed by a strong fresh mandate it will be difficult for the IMF to resist such a request. This underlines the importance of holding elections as early as possible.

The failure of the Gotabaya Rajapaksa Government to go to the IMF in time had made the task of President Ranil Wickremesinghe and that of any future government much more difficult. During the proceedings in the fundamental rights applications before the Supreme Court, in which the Court determined that President Gotabaya Rajapaksa and several others had to take responsibility for the economic crisis it transpired that the Central Bank’s Monetary Board in its statutory reports had informed the Finance Minister of the time about the dire situation in the economy and the need to seek assistance from the IMF due to the situation that prevailed during the relevant period.

Minister Ali Sabry, who was the Finance Minister at the time the Government announced bankruptcy, himself admitted the Government knew that they had to turn to the IMF for assistance but failed to do so.

Despite the Government having succeeded in obtaining two tranches of the IMF bailout package there is still insufficient movement to increase revenue sufficient to lift the economy from the doldrums. There is still inadequate action taken to reduce expenditure which can in turn have a positive impact on the economy.

The much-needed action on the corruption front too has to be expedited if the people are to regain hope that the country is on the right track. Above all as a functioning democracy the people have to take responsibility to identify the political party with the correct policies, with individuals of integrity and commitment to implement such policies.

But that will have to await a date for elections. Until then the people will have to hope for the best.