Govt. might need to go for new IMF package before crisis: economist
Says it would lend some confidence
Sri Lanka may need to negotiate another International Monetary Fund (IMF) bail out package to increase confidence in the country and to ease any balance of payment issues that may arise in the future, a leading economist said.
“The IMF option seems more prudent, because even if you want to tap the sovereign market, having an IMF program also lends some confidence,” Institute of Policy Studies Deputy Director Dushni Weerakoon said at an economic forum organized by the DFCC Bank.
She noted that the government may be pressured to go for more sovereign borrowings due to the recent unsustainable and populist economic policies implemented to counter political instability while having inadequate revenue.
According to Weerakoon, if the infrastructure-drive is to be continued, such foreign borrowings are also required.
“We can continue infrastructure-led development through foreign financing so long as there’s a good outlook for the country, political stability and a global environment supports efforts to raise such capital,” she said.
However, she explained that if such debt starts accumulating and Sri Lanka’s exports are not up to the task of supporting the foreign reserves, the IMF option would be crucial.
Weerakoon stressed that the upcoming budget would be important in IMF deciding whether they would even sit down at the negotiating table with Sri Lanka.
“They were unhappy about the January budget because they thought it was too populist. There wasn’t consistent revenue generation in that to sustain the recurrent expenditure. So I think what they want to see is revenue,” she said.
She hoped that the upcoming budget will not increase populist measures, and focus mainly on such revenue generating measures.
“So you can kind of forget the expenditure side. I don’t think the IMF will be asking to see that the loss making state enterprises and all of that is addressed in this budget. I think if the revenue side is strong enough, that will open the door for them to say ‘okay we’re ready to talk’,” she added.
She said that it would be better to negotiate with the IMF now than when a crisis is in full progression.
Finance Minister Ravi Karunanayake has attended some IMF events globally this year, and claimed that the IMF is more than willing to extend an option over 5 times larger than those extended in the past.