18 November 2024 12:44 am Views - 19
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Bingumal Thewarathanthri Pic by Pradeep Dilruckshana |
While expressing cautious optimism, a top banker emphasised the delicate balancing challenge the new government faces on the fiscal front is managing the terms of its IMF programme to avert another debt crisis without imposing undue financial strain on the economy and its people.
While acknowledging the importance of the IMF programme and associated reforms to address fiscal gaps and avert further crises, Sri Lanka Banks’ Association (SLBA) Chief and Standard Chartered Sri Lanka CEO Bingumal Thewarathanthri urged caution in implementing all IMF proposals to their full extent.
Speaking at the South Asian Apparel Leadership Forum, part of the Colombo Design Festival at Cinnamon Life, Thewarathanthri highlighted the potential risks of certain measures, including a proposed property tax, which could exacerbate financial burdens on citizens, trigger a wave of emigration, and reduce the domestic workforce—ultimately harming the economy.
“It’s not sustainable to have a massive rupee deprecation, debt default, inflation of 70 percent and a tax (increment) of 100 percent , so it’s a big challenge for the new government to keep negotiating every six months on the IMF programme, but we are cautiously optimistic.
“The sad part is that they (IMF) are very serious about the fiscal side. This is something for Sri Lanka to think about, because we can’t go on with their every recommendation, because next it would be the property tax, so more Sri Lankans will leave,” he said.
He shared these remarks at the South Asian Apparel Leadership Forum, held recently as part of the Sri Lanka Design Festival 2024 at Cinnamon Life.
Despite his reservations about certain proposals, Thewarathanthri underscored the critical need for Sri Lanka to remain within the IMF agreement framework to secure multilateral funding.
“It’s decisive that we stay on the IMF agreement, because multilateral funding is critical during this time. Multilaterals bring in money (only) if you are in the (IMF) programme, it’s where the challenge is. ADB and WB will play significant roles in bridging this fiscal gap,” he added.
The country faces significant fiscal pressures, with an estimated 50 percent of next year’s revenue expected to go toward debt servicing.
Additionally, approximately Rs. 1.1 trillion will be required to pay salaries for 1.5 million public servants (excluding the proposed salary increase), alongside another Rs. 1 trillion for welfare and pensions. Under the IMF requirements, Sri Lanka must achieve a 2.3 percent primary account surplus in 2025, leaving minimal space for capital investments critical for sustainable growth.
“To navigate these challenges, adhering to the IMF programme is essential, as continued access to funding from key organisations, such as the World Bank (WB) and the Asian Development Bank (ADB), hinges on meeting the programme’s fiscal standards. If we don’t behave, there will be repercussions,” Thewarathanthri cautioned.
Meanwhile, the new government recently expressed interest to join the New Development Bank (NDB), a multilateral development bank established by the BRICS countries (Brazil, Russia, India, China, and South Africa). The NDB could support Sri Lanka with infrastructure revitalisation, access to affordable financing and leveraging partnerships.
In particular, NDB imposes less stringent conditionalities in comparison with traditional multilaterals. This could be complimentary for traditional institutions such as WB, enabling Sri Lanka to expand its financial toolkit to address pressing developmental and economic challenges.
(NF)