The UNP, the SJB and the NPP have launched their presidential election campaigns in earnest. They have decided to field their leaders, President Ranil Wickremesinghe, Sajith Premadasa and Anura Kumara Dissanayake, respectively, as their presidential candidates. Ironically, the SLPP, which won the last presidential race impressively, has not been able to decide whether to field a presidential candidate on its own or throw in its lot with someone else; it however will have to make up its mind soon. This is the fate that awaits any party that fails to manage its electoral gains. Had President Gotabaya Rajapaksa lived up to the people’s expectations instead of ignoring sane counsel and acting arbitrarily, he would still have been in power and the SLPP would not have been in this predicament.
Only President Wickremesinghe seems to have realized that the next presidential election will be different in that the people are more concerned about the economy and public funds than ever before. The people will elect as the next President a candidate who, in their opinion, will be able to revive the economy. They have learnt from the current economic crisis that populist measures that governments adopt to win elections adversely impact the economy. The SLPP slashed taxes, launched a politically-motivated relief programme during the Covid-19 pandemic to win the 2020 general election, and resorted to excessive money printing to fund those programs. Those measures sent the economy into a tailspin, and plunged the country into chaos. The Gotabaya Rajapaksa administration, which refused to seek IMF assistance at the early stages of the economic crisis, had to make a policy U-turn, but it was too late.
Sri Lanka’s economic recovery will not be possible unless future Presidents and governments stay the course on the reform agenda prescribed by the IMF, whose policies cause immense hardships to the public in the short term and are therefore not politically popular or wise. But if the IMF program is terminated, a situation similar to the one we witnessed in 2022 is bound to occur with no prospect of recovery. This is the last thing anyone in his or proper senses wants in this country, but not all ruling party MPs have come to terms with this harsh reality.
Some SLPP MPs have taken exception to Central Bank Governor Dr. Nandalal Weerasinghe’s statement that Sri Lanka will have to keep the IMF program on track, whoever comes to power at future elections, if the country’s ailing economy is not to slide back into crisis. Speaking in the parliament, the other day, one of them voiced protests and even asked for a three-day debate on Dr. Weerasinghe’s statement, but his call went unheeded. The IMF loan conditions are hurtful, but they are a necessary evil for a country which has ruined its economy and is at a loss to figure out how to put it right.
The Opposition has been blowing hot and cold on the IMF program. Opposition and SJB Leader Sajith Premadasa keeps saying that a future government to be formed by his party will renegotiate the IMF bailout, but he has stopped short of going into specifics. Thankfully, he has not threatened to pull out of the program. The JVP-led NPP has also been expressing views critical of the IMF, its extended fund facilities and conditions, but it has chosen to remain silent on what it would do if it secured the presidency and formed the next government.
The IMF is concerned about the continuity of its program here. Sri Lanka has obtained IMF assistance on about 16 previous occasions, but reneged on its side of the bargain in most cases. Having learnt from its dealings with Sri Lanka, the IMF is not likely to part with its money easily again; it will wait until its conditions are met to release the remaining tranches of its extended fund facility. The SJB has said in a media statement that its leader Premadasa, who met the IMF delegation including Senior Mission Chief Peter Breuer, IMF Resident Representative Sarwat Javan and local economist Manavee Abeywickrama, on Friday (19) informed them that a future SJB government would renegotiate the IMF program. He also criticized the government for jacking up taxes on the pretext of meeting IMF conditions, according to the SJB statement. Ironically, tax increases are one of the main IMF conditions. The same IMF delegation met a group of NPP seniors including Dr. Harini Amarasuriya and Sunil Handunnetti, on Friday but the NPP has not revealed what transpired at the meeting. NPP leader Anura Kumara Dissanayake was not present at the discussion; he may have thought the meeting at issue would be used against him in the run-up to the next presidential election and skipped it.
The SLPP government under President Ranil Wickremesinghe’s leadership has been able to stabilize the economy to some extent, as the IMF has observed in its end-of-mission press statement dated Jan., 19, 2023: “The economic reform program implemented by the Sri Lankan authorities is yielding the first signs of recovery. Real GDP recorded positive growth of 1.6 percent year-on-year in the third quarter of 2023, the first expansion in six consecutive quarters. Shortages of essentials have eased, and inflation remains contained. Gross international reserves increased by USD 2.5 billion during 2023, and preliminary data point to improved fiscal revenue collections during the fourth quarter of 2023. However, challenges remain as these improvements need to translate into improved living conditions for Sri Lanka’s people.”
The IMF is insisting that the government go all out to boost state revenue so that the gap between its tax revenue and expenditure can be narrowed and new loans obtained. It has reiterated how it thinks Sri Lankan could achieve full economic recovery: “… sustaining the reform momentum and ensuring timely implementation of all program commitments are critical to rebuilding confidence and putting the recovery on a firm footing that will benefit all people. Swift progress towards the introduction of a progressive property tax is key to ensuring fair burden sharing while sustaining the revenue-based consolidation. Tax policy measures need to be accompanied by strengthening tax administration, removing tax exemptions, and actively eliminating tax evasion to make the reforms more sustainable and to further build confidence among creditors to support Sri Lanka’s efforts to regain debt sustainability.”
The government will now have to implement the proposed property tax, which will worsen the economic burden of the majority of the Middle Class already reeling from very high taxes. Their buying power is bound to decrease further leading to a drop in consumption and savings. VAT increase is believed to have adversely affected the supermarket chains, and other such businesses with VAT registration. The IMF has specifically mentioned what it expects Sri Lanka to do to have the second tranche of loan unlocked. “The authorities have made commendable progress with putting debt on a path towards sustainability.
The execution of the domestic debt restructuring was an important milestone. A swift completion of final agreements with official creditors and reaching a resolution with external private creditors remain critical. Progress in meeting key commitments under the IMF-supported program will be formally assessed in the context of the second review of the EFF arrangement alongside the forthcoming 2024 Article IV consultation assessing Sri Lanka’s economic health.” So, the person who aspires to win the next presidential election and steer the country out of crisis will have to take the public into confidence and convince them of the need to continue the ongoing economic recovery process with IMF assistance despite the current difficulties and eliminate the factors that led to the debilitation of the economy. Conventional campaign tactics such as the distribution of handouts, promises, and rhetoric will not do.