The implementation of the IMF recommendations had left the Sri Lankan public resentful, says Premachandra Athukorala, Professor of Economics at the Australian National University.
The government has not reduced its expenditure, and it has failed to spell out what it intends to do, he said. “The IMF itself says this in its latest report. The IMF says there is reform fatigue in the country,” he said.
Prof. Athukorala has said Sri Lanka’s loan instalments that had gone into arrears during the last two years ran into about three billion dollars.
“The longer we take in external debt restructuring, the higher will be the arrears. Sri Lanka’s credit rating has been downgraded and private banks face great difficulties issuing letters of credit because of this,” Prof. Athukorale said, noting that there would be a surplus of about a billion dollars in Sri Lanka’s balance of payments in 2023. However, the country’s foreign reserves are at a historical low.
“The country faces instability. When this happens, money flows out of the country through informal means. In the balance of payments, there is a component called errors and omissions. These keep on rising. This is because money is sent out when the Central Bank relaxes restrictions on moving capital around and through over-invoicing and under-invoicing,” he said.
Prof. Athukorala said that Sri Lanka hoped to get a 30-percent haircut from its creditors. However, so far, they had only agreed to a 20-percent haircut, but the government is not agreeable to that, he said.
“The government’s expenditure is about 200 percent of its income, and 85 percent of it is recurrent expenditure. This year, we reduced the primary deficit by lowering capital expenditure. The IMF does not ask us to cut expenditure directly because it is politically sensitive. However, we need to rationalise our recurrent expenditures as well as increase tax revenue. Most people don’t like taxes because they think the government is wasting money. We need to change this,” he said
Source: Island
