Sri Lanka’s Financial Crisis: Can the IMF Bailout Help?
Sri Lanka is currently facing its worst financial crisis since 1948, with years of economic mismanagement and the impact of the COVID-19 pandemic taking a heavy toll on the country’s economy. The dire situation has led to months of protests, culminating in President Mahinda Rajapaksa fleeing the country in July 2021. However, there is some hope on the horizon, as Sri Lanka has received a nearly $3 billion bailout from the International Monetary Fund (IMF). But what does this mean for the country’s future, and can it help to address the widespread shortages and soaring cost of living that have plagued Sri Lankans in recent years?
To explore these questions, Inside Story invited three experts to share their insights. Eran Wickramaratne, a member of Sri Lanka’s parliament and former state minister of finance, Ganeshan Vignaraja, a policy adviser and senior research associate for the Overseas Development Institute in Colombo, and Ahilan Kadeelgama, a political economist and chairman of the Northern Cooperative Development Bank in Jaffna.
The IMF bailout is undoubtedly good news for Sri Lanka, as it will provide much-needed financial support to the country’s struggling economy. However, as Eran Wickramaratne notes, this support comes with conditions. “The IMF has given us a program that we have to implement over the next four years,” he explains. “It’s going to be tough, but we have to do it if we want to get out of this crisis.”
One of the key conditions of the IMF program is that Sri Lanka must reduce its budget deficit, which currently stands at around 9% of GDP. This will require significant cuts to government spending, which could be politically challenging. However, Wickramaratne believes that it is necessary to address the country’s financial problems. “We have to reduce our deficit, we have to reduce our debt,” he says. “Otherwise, we’re not going to be able to borrow any more money, and we’re not going to be able to pay our debts.”
Ganeshan Vignaraja agrees that reducing the budget deficit is crucial for Sri Lanka’s economic recovery. However, he also highlights the need for structural reforms to address the root causes of the country’s financial problems. “We need to look at things like tax reform, trade reform, and investment reform,” he says. “We need to create an environment that is conducive to investment and growth.”
Ahilan Kadeelgama echoes this sentiment, arguing that Sri Lanka needs to move away from its reliance on foreign loans and focus on developing its domestic economy. “We need to invest in agriculture, fisheries, and small businesses,” he says. “We need to create jobs and opportunities for our people.”
However, Kadeelgama also notes that Sri Lanka’s political situation could pose challenges to implementing these reforms. “We have a very polarized political environment,” he says. “There are different factions within the government that have different ideas about how to move forward.”
Despite these challenges, all three experts agree that the IMF bailout provides an opportunity for Sri Lanka to address its financial problems and set itself on a path towards economic recovery. However, they also emphasize that this will require tough choices and difficult reforms.
“The IMF program is not a silver bullet,” says Vignaraja. “It’s a tool that we can use to address some of our problems, but ultimately, it’s up to us as a country to make the necessary changes.”
Wickramaratne adds that it is important for Sri Lankans to come together and work towards a common goal. “We need to put aside our differences and focus on what’s best for our country,” he says. “If we can do that, I believe we can overcome this crisis.”
In conclusion, while the IMF bailout is undoubtedly a positive development for Sri Lanka, it is only the first step towards addressing the country’s financial problems. To truly set itself on a path towards economic recovery, Sri Lanka will need to make tough choices and implement difficult reforms. However, with the right policies and a united effort from its people and government, there is hope that Sri Lanka can overcome its current crisis and build a brighter future for all its citizens.