IMF bailout unavoidable next year: Prof. Sally
Posted on December 21st, 2015

Courtesy The Daily Mirror

Given the tight liquidity in capital markets due to the rise in global interest rates, a bail-out package from the International Monetary Fund (IMF) is unavoidable for Sri Lanka next year, according to Professor Razeen Sally, an economist with international repute.

However, Professor Sally noted that the IMF lacks confidence over the Lankan government and in particularly with its ministry handling the country’s finances, as the maiden budget of the national unity government has ignored fiscal consolidation— one of the top conditions imposed by the lender when  extending support.

In 2009, Sri Lanka was bailed-out by the IMF from a balance of payment (BOP) crisis—which was triggered by excessive money printing to support subsidies—through a US $ 2.6 billion Stand-By-Arrangement (SBA).

Two weeks ago, Sri Lanka’s Prime Minister, Ranil Wickremesinghe told parliament that the government was looking to start discussions with the IMF for another SBA as the global growth is projected to slowdown.

He noted that ISIS rebels creating greater instability in the Middle East could also hurt Sri Lanka’s economy.  However, the message sent out by the recent Budget 2016 could make the dialogue with the IMF for a potential SBA facility problematic as it seriously lacked  fiscal consolidation.

The new government had also not made progress in the macro-economic front too, Professor Sally, the Visiting Associate Professor at the Lee Kuan Yew, School of Public Policy, National University of Singapore, pointed out.

According to him, Sri Lanka has a culture of acting irresponsibly over its finances and then expects to be bailed out by the IMF. He stressed that continuing this vicious cycle of resorting to the IMF is very damaging.

It prevents a sinner from repenting and it’s another excuse to continue sinning,” said Professor Sally. He noted that the last SBA facility was clearly political and was given under very easy conditions.

The last government pretended it was reforming and the IMF pretended the government was reforming but it kicked the can down the road,” he remarked.  He said Sri Lanka could not expect the IMF to come and sort out all its problems as much of the reforms must be carried out internally.

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