Talks of IMF rescue package spark debate over stability and growth

Sri Lanka’s decision to seek a rescue package from the International Monetary Fund (IMF) has sparked a debate whether the Fund’s support would come at the expense of growth, as both growth and stability remain key for Sri Lanka to emerge victorious out of the current economic crisis. 

According to data, during each time Sri Lanka sought an IMF bailout and was under a programme, the country’s growth had suffered with the exception of during 2010 and 2012 when the Sri Lankan economy was off to a growth spurt due to post war euphoria. 

Meanwhile, the IMF also projected a gloomier outlook for the Sri Lankan economy for this year with growth projected at a weaker 2.6 percent, slowing from an estimated 3.6 percent growth in 2021. 

Sri Lanka had growth aspirations of 5 to 6 percent every year for the next five years,  but it soon had to confront the harsh realities of the pandemic and its ramifications on all aspects of the economy as the economy contracted by 3.6 percent in 2020. Economic analysts opine that IMF programme support would bring short-term economic stability by restoring access to dollar inflows by way of fresh borrowings from international capital markets and also would impose tough disciplinary measures on spending, revenues and improving overall economic efficiency and productivity. 

However, they at the same time are of the belief that an IMF programme, which Sri Lanka is badly in need at the moment, may not always propel economic growth. 

After a growth spurt seen from 2010 to 2012, Sri Lanka’s economy has been on a gradual decline.
Particularly the 2015-2019 period, where Sri Lanka was under and its 16th IMF programme, economic growth sputtered amid higher taxes.

Hence, there is a growing consensus that while the IMF may be required for a short period till the economy regains stability, more growth-friendly policies outside the IMF may be required to propel economic growth, which is equally important for Sri Lanka in the current context. 

However, no growth could be achieved without stability in the first place.