Many in Sri Lanka are currently focused on the ongoing negotiations with the IMF regarding the loan program. Some criticise the new government, claiming that the Janatha Vimukthi Peramuna (JVP), which had promised to amend the program with the IMF, has forgotten those promises after gaining power.
They also accuse the government of failing to alleviate the burden on the people imposed by the IMF’s conditions, stating that the cost of living has increased significantly as a result. Criticism is widespread, with comments like, “This government is no different; they’re doing the same things as the previous one.”
However, others argue that the IMF deals with the Sri Lankan government, not the JVP, Ranil Wickremesinghe, or any other party or group. Therefore, they contend that expecting significant changes to the IMF program following the new government’s ascension to power is a fundamental falsehood. While some previously predicted the IMF program’s failure, these individuals believe that the current situation reflects reality. Many believe and hope that the program will continue under the JVP’s new government and achieve its objectives.
How the Fourth Loan Instalment Was Approved
Following the new government’s assumption of power, an IMF delegation led by Senior Resident Representative Peter Breuer visited Sri Lanka. They held discussions with government economic authorities, including President Ranil Wickremesinghe, and Central Bank officials, including Governor Dr. Nandalal Weerasinghe.
This visit, from November 17th to 23rd, 2024, focused on completing the third review of the loan program, which has now concluded. Consequently, the IMF reached an official-level agreement on the third review of Sri Lanka’s Extended Fund Facility, creating confidence regarding the release of the fourth loan tranche.
The Fourth Instalment After the Budget
Reports indicate that the fourth loan instalment is expected after the 2025 budget. The IMF’s management and executive board approval of the third review of the Extended Fund Facility is necessary. Sri Lanka is scheduled to receive US$333 million under this facility. However, several preconditions must be met by the Sri Lankan government. These include submitting a 2025 budget aligned with the IMF program’s objectives.
The new government plans to present the 2025 budget on February 17th, 2025. Until then, the government will operate with a supplementary budget. Therefore, Sri Lanka will receive the fourth instalment of the extended fund facility only after the budget presentation. This will result in a delay of two and a half months compared to previous years, primarily due to the presidential and parliamentary elections.
The budget’s postponement to next year was necessary because of these elections. Meanwhile, Central Bank Governor Dr Nandalal Weerasinghe stated in a press conference that the loan instalment could be received after obtaining approval from the IMF’s executive board.
The New Government’s Stance
The IMF’s executive board is scheduled to review the preconditions and financial assurances. The board will primarily consider the secured multilateral partner funding and the progress made in debt restructuring. However, the release of the fourth loan tranche is now confirmed, and the new government has stated its readiness to receive it.
With this instalment, the total amount received by Sri Lanka under this facility will be US$1333 million. On March 20th, 2023, the IMF decided to provide Sri Lanka with US$3 billion. Following the new government’s assumption of power, the IMF issued a special statement highlighting the new government’s exceptional commitment to the loan program’s objectives.
The IMF also noted the government’s willingness to ensure policy continuity. This statement, made by the IMF itself, reflects the nature of the discussions held with the new government. It serves as confirmation that the new government is committed to the IMF program’s goals and will continue existing policies.
Therefore, it’s clear the new government is unwilling to abandon the IMF program. Moreover, the IMF has stated that the economic reform process must continue. It is evident that despite the criticism of the IMF during past election campaigns, the new government, having won the election and now in power, must cooperate with the IMF.
Numerous Criteria Set by the IMF
The IMF has advised the government to implement preconditions, including presenting a 2025 budget aligned with the loan program’s goals. Therefore, it’s clear that the new government must formulate the 2025 budget according to the IMF program’s objectives. The new budget must meet the existing agreements and targets. However, the IMF has emphasised that this does not hinder the new government from presenting budget proposals according to its policy changes.
Some tasks scheduled for completion before the end of October 2024 were missed, and the new government will have to complete them. The economic crisis Sri Lanka faced in 2022 affected the entire population. Therefore, the IMF believes it is important to ensure that the benefits of economic growth are fairly distributed. The IMF strongly emphasises that maintaining macroeconomic stability and restoring debt sustainability are crucial for securing Sri Lanka’s prosperity.
Challenges Facing the New Government…
The budget will showcase more practical measures for revenue generation and expenditure control. Challenges for the government include clearly demonstrating actions towards revenue administration reforms, improving tax compliance, and ensuring taxpayer contributions.
Against a backdrop of significantly increased foreign reserves (to US$6.5 billion), a robust mechanism for meeting future debt obligations must be introduced. Maintaining the continuity of foreign reserve accumulation is also crucial. To prevent a major crisis like that of 2022, the government must use scientific methods to manage the economy. Failure to do so will lead to devastating consequences, as people have witnessed in the past. The public’s response in the recent elections clearly showed this. It’s crucial that the current government acknowledges this.
