By Vishvanath
It is popularly said that between saying and doing many a pair of shoes is worn out. Perhaps, nothing exemplifies this truism better than the notable mismatch between campaign rhetoric and delivery on the ground after elections, especially in Sri Lanka.
In the run-up to the recently concluded presidential election, the NPP kept on saying that it would alter Sri Lanka’s agreement with the IMF, obtain better terms and grant relief to the public. President Anura Kumara Dissanayake, during his campaign trail, would wax eloquent on what he called the cons of the IMF bailout programme for Sri Lanka. Taking part in Derana 360° programme, which received much public attention, close to the presidential election, he declared that an NPP government, under his presidency, would present an alternative to the Debt Sustainability Analysis (DSA) prescribed by the IMF. Asked by the Derana interviewer whether such a course of action would be permissible, he answered in the affirmative. He sounded very confident although the Finance Ministry had warned a few days before that if Sri Lanka tried to amend the DSA stipulated by the IMF or introduce a new one, it would risk losing IMF assistance. However, less than one month later President Dissanayake had to soften his stand when the sobering economic reality began to dawn on him, his economic advisors and the NPP.
The NPP propagandists also dismissed as a total sell-out an agreement in principle (AIP), which the Rajapaksa-Wickremesinghe government under the then President Ranil Wickremesinghe’s leadership had reached on restructuring International Sovereign bonds. But on Friday (04), following a discussion with an IMF delegation in Colombo, the NPP government announced that it had agreed to proceed with the AIP. The Ministry of Finance headed by President Anura Kumara Dissanayake himself said in a media statement on Friday:
“Following the Presidential Election held in Sri Lanka on Saturday 21st September and the appointment of the new government on 24th of September, the Sri Lanka authorities confirm their endorsement of the program debt targets and the AIP terms as announced on 19th September and confirm their intention to expedite the implementation of the ISBs restructuring transaction in line with these terms.”
The media reported that Sri Lanka was going ahead with a deal to restructure sovereign bonds reached last month, with final confirmation on compliance with their parameters set by the IMF and an Official Creditor Committee.
When the previous government announced the proposed debt restructuring deal, it was clear that the AIP was nonnegotiable and the IMF would not agree to amend it. Why the NPP disregarded that fact and infused the public with some hope that it would be possible to amend the AIP is the question. It may have thought of using that issue to rally more popular support, given the people’s resentment at the IMF bailout conditions. However, its acquiescence in the AIP identified with its rival camp, could not have come at a worse time; a general election is around the corner, and the NPP has its work cut out to form a majority government, having been able to obtain only 42% of the total number of valid votes at last month’s presidential election.
Taking part in Derana 360° programme, economist and former SJB MP Dr. Harsha de Silva highlighted a glaring discrepancy between what the NPP had promised before the presidential election and its compliance with the IMF prescribed DSA. He claimed that he had reliably learnt that the NPP had not even sought to amend the DSA at recent talks between the IMF and the government. All NPP economic experts met the IMF officials separately prior to the meeting where the government agreed to the DSA stipulated by the IMF. Dr. de Silva said the NPP had failed to honor one of its main election pledges. This is likely to be one of the issues the SJB is going to flog hard during its general election campaign. It will be interesting to see what the NPP has got to say.
Let it be repeated that on Sept. 06, the Finance Ministry, which was then under President Wickremesinghe’s purview as the Minister of Finance, said in no uncertain terms that a future government would run the risk of losing IMF support in case it sought to renegotiate the DSA. It issued an explainer, which said, among other things, that refusal to work with the IMF’s DSA for Sri Lanka would lead to unquantifiable delays in the program with Sri Lanka. “Any country can of course stand its ground and refuse to move forward based on the IMF’s DSA if it disagrees with the outcomes of the model and the IMF’s assessments. The IMF would simply not be able to proceed with a financing programme given its inability to lend to a country with debt deemed unsustainable. Such a stand-off would only serve to delay an agreement on a financing programme for several months if not years.” The Finance Ministry explainer was intended to counter the NPP’s pledge to alter the DSA crafted according to IMF specifications.
President Dissanayake, as the Minister of Finance, desperate to retain IMF assistance in helping resolve the economic crisis and improving Sri Lanka’s credit ratings, which are crucial for economic stability, and to obtain the next tranche of the IMF loan, must have opted to play according to the IMF’s rules.
President Gotabaya Rajapaksa had to flee the country because he delayed seeking IMF assistance and kept on trying homegrown remedies, which did not work. Eventually, he decided to ask for IMF help, but it was too late by that time; the country’s foreign currency reserves had diminished and there were no dollars for essential imports, and the people were languishing in winding queues near refilling stations, cooking gas sales outlets, etc. Protests intensified and Gotabaya had to resign after leaving the country in 2022. Losing IMF help is a frightening proposition for any government during an economic crisis. It is therefore natural that President Dissanayake and his Cabinet have heeded the warning issued by senior economists, the business community, the Central Bank and the Finance Ministry that IMF assistance has to be retained at any cost.
The Opposition may make an issue of President Dissanayake’s policy reversal in respect of the DSA, but it can be considered a positive sign that the new government, described as Marxist, has demonstrated some flexibility and exuded a measure of pragmatism. The NPP is sure to flaunt, as an achievement, the fact that the IMF has agreed to work with it despite its opponents’ pre-election claims that Sri Lanka would not be able to retain international support if a JVP-led alliance captured state power. The next few weeks will see the spin doctors of both the Opposition and the government clashing over the IMF deal.
