SL’s hope for economic stability under IMF hangs in balance 

• Experts point out the negotiation process with IMF could complicate when govt. doesn’t have peoples’ backing
• Fear that SL is heading for disorderly default with lack of progress made towards debt restructuring 
• Point out vulnerabilities in the country’s external sector could exacerbate with govt. using force to quell public dissent 

By Nishel Fernando
With the government resorting to anti-democratic measures to curb the wave of protests emerging across the country against the mishandling of the economy, Sri Lanka’s hopes for economic stability under an International Monetary Fund (IMF) programme hang in the balance.

President Gotabaya Rajapaksa on Friday declared emergency and imposed a 36-hour curfew on Saturday and a temporary ban on social media on Sunday morning in an attempt to quell island wide protests against on-going economic crisis.

With the country’s usable foreign reverses depleting to record lows ahead of a US$ 1 billion ISB maturity in July this year, Head of First Capital Research (FCR) Dimantha Mathew warned that the recent event could worsen the possibilities of a 
disorderly default.

“We are increasing the risk of a disorderly default. An IMF programme is critical for Sri Lanka at this juncture. But, if this (social unrest) is going to be a continuous thing, it’s going to become a problem,” Meathew stressed.
The European Union, United States and the United Nations have already expressed concerns on the recent developments in Sri Lanka, urging the authorities to safeguard democratic rights of all citizens.

Sharing his views, economist and Verité Research Executive Director Deshal De Mel shared that vulnerabilities in the external sector could exacerbate due to 
recent developments.

“Recent developments such as the imposition of curfew, social media blockades, emergency regulations, and 13-hour power cuts, are certainly not conducive for Sri Lanka’s attractiveness in terms of investment, tourism, and its ability to raise international financing to manage external debt. This uncertainty also increases the probability of a disorderly default of upcoming external liabilities,’ he said.

He stressed that restructuring of external debt maturities, including the upcoming ISB in July, should be the top priority of the government.

“By doing so, the country would be able to limit the near term outflow of foreign currency and preserve resources to meet the essential needs of citizens including fuel and cooking gas. Restructuring external debt would give the economy the required time to put in place a sustainable fiscal and macroeconomic framework in order to regain access to global capital markets to manage its external debt in a sustainable manner,” he said.

Meanwhile, Advocata Institute Chair Murtaza Jafferjee raised deep concerns on the government’s ability to secure public support for an IMF programme when it seemed to have lost legitimacy.

“The legitimacy of the government seems to have been significantly impacted. My concerns would be that how the leadership is going to communicate to the people of this country of the necessary reforms and the stabilisation process when they seem to have lost legitimacy 
of the people?

Under a stabilisation programme with the IMF, we will require a very strong leadership to guide and coordinate the process and also communicate with people. But, if there’s an uprising against the leadership, one wonder how would this is going to happen,” he noted.

Mathew highlighted that the country’s request for IMF support came six months too late due to the reluctance of the Central Bank to reach out to the Fund, although, there were clear signs of an impending economic crisis.
“We don’t see a real commitment or push by the government to solve the problem,” 
he added.

Jafferjee opined that the whole economic team of the government must be 
replaced with capable technocrats. 

“The economic team of the government has lost credibility. You cannot use the same people to get us out of trouble. Therefore, they will need to be replaced,” he said.