More loans, long queues, extended power cuts

After months of dilly dallying, vacillating and procrastinating, the Gotabaya Rajapaksa government has now decided to seek International Monetary Fund (IMF) assistance to restructure or resuscitate Sri Lanka’s economy, which has plunged into its worst ever crisis.

It is interesting to note that the government has appointed another committee comprising Foreign Minister G.L Peiris, Justice Minister Mohommad Ali Sabry, Central Bank Governor Ajith Nivard Cabraal and Treasury Secretary S.R. Attygalle, to select an international law firm to conduct negotiations with the IMF. This is the 17th occasion that IMF assistance is being sought and there have been no reports of international law firms appointed to negotiate with the IMF on the 16 previous occasions. Why now? 

Is there a dearth of well qualified and experienced lawyers and economists in Sri Lanka to assist this government for this purpose? The foreign law firm, if and when selected, would definitely carry a heavy price tag that the dollar-strapped Sri Lankan government could hardly afford to pay at an extremely difficult time such as this.  Is this another ruse to direct hard to find dollars into somebody’s pocket like it has happened before? If at all, the President should have appointed law firms or committees prior to entering into agreements with foreign countries or foreign firms prior to seeking loans or investments. 

Strangely enough CB Governor Ajith Nivard Cabraal -- who for reasons best known to him, has vehemently opposed any interaction with the IMF and at every turn has openly contradicted Finance Minister Basil Rajapaksa whenever he (Basil Rajapaksa) made any kind of statement on the need to seek IMF assistance -- is also a member of this committee, one of the many appointed by the President since assuming office in 2019. 

Notwithstanding the pompous rhetoric by the political leadership, the state of Sri Lanka’s economy could be easily gauged when considering the latest request for a further loan of US$2.5 billion from China – a billion dollars to repay loans obtained earlier from Chinese banks and a credit line of US$1.5. They come hard on the heels of the billion-dollar loan or credit line from India in addition to the currency swaps of US$400 million and US$500 million earlier this year. A Reuters report says that amid a further drop in Sri Lanka’s foreign reserves, the government has sought an additional credit line of US$1 billion from India during talks with India’s foreign minister, who is on a visit to Sri Lanka. This is apart from a loan facility of US$250 million sought from Bangladesh.

The government should not keep the people in the dark, but reveal the conditions attached to these loans, currency swaps and credit lines which have to be repaid sooner or later. Has the government a proper methodology to repay so many loans without heaping more burdens on the people at a time when the country’s dollar income is generated at a pace much slower than slow motion? It can only mean being trapped in a vicious cycle of begging for more loans to repay loans taken previously as is happening now.

Meanwhile, the IMF in its latest report on Sri Lanka, provides a dismal economic outlook for the country and recommends drastic cuts to government spending, increasing corporate, personal income and value added taxes, minimising tax exemptions and ensuring greater contributions from high-income earners.

The IMF has also urged continued efforts to improve governance and reduce corruption. “With very limited fiscal space, the need for transparency and accountability in the use of public resources—including COVID-19 spending—is more important than ever,” it states. “Upgrading anti-corruption legislation should be a priority, and the recent Cabinet decision to resume this reform process, after a significant delay in 2020-21, is welcome.”

“In staff’s view, Sri Lanka’s debt is unsustainable,” the report says. “Based on staff analysis, fiscal consolidation necessary to bring debt down to safe levels would require excessive adjustment over the coming years, pointing to a clear solvency problem.” 

Against such a backdrop where Sri Lanka is heading, if not down the precipice of self-destruction resulting from the folly and the inefficiency of our political leaders, who themselves appear to have been overwhelmed by the depth of this unprecedented crisis while the ordinary people have to pay a heavy price as they continue to stand in queues to buy domestic gas, petrol, diesel, milk powder or other essential commodities in addition to the severe discomfort of having to contend with power cuts of ten hours each day? When, if at all, will this agonising torture end?