No Gain Without Pain

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Yesterday this newspaper carried an article under the heading “President seeks US support in reaching out to IMF.”

To quote excerpts, it said, “President Gotabaya Rajapaksa said yesterday (28), that he’s looking forward to the support of the US in reaching out to the IMF.

He made this remark when US Ambassador Julie Chung called on him at the Presidential Secretariat, Colombo.

Chung praised the Government’s decision to go to the IMF and said, it was important for the future of Sri Lanka. ”

USA with a 16.5 per cent voting power in the IMF’s Executive Board exercises the single largest voting rights. The IMF Board has the sole right to approve/disapprove requests for concessional loans by distressed countries like Sri Lanka.

A simple majority, while on certain occasions 70 per cent or at times even an 85 per cent majority vote is needed from the IMF Board to approve loans.  The country which has the second largest voting rights in the IMF Board is Japan (6.14 per cent), followed by China (6.08 per cent).

Meanwhile, Rajapaksa’s meeting with Chung came in the backdrop of the IMF’s Executive Board concluding its recent Article IV consultations with Sri Lanka and which consultations were made public on last Friday.

The President’s request to the US Envoy has also to be looked at in the context of at least one “contentious” observation made by the IMF in its Article IV Consultations with the Island. To quote excerpts, “Sri Lanka’s capacity to repay the Fund needs to be closely monitored. Credit outstanding to the Fund stood at SDR902 million (US$1.3 billion) at end-2021, with payments (repurchases and charges) due averaging $170 million over 2022-29.

 While the credit outstanding and the payments due are not large (1.5 per cent of GDP at end-2021 and around one per cent of total exports over 2022-27, respectively) and Sri Lanka has kept a sound track record of repaying debt, its precarious reserves position, debt overhang, as well as persistent fiscal and balance of payments (BoP) financing shortfalls pose high risks to Sri Lanka’s capacity to repay the Fund (IMF). ” (See also Monday’s Ceylon Today (CT) 

IMF provides financial support for BoP needs (ie for external commitments as opposed to domestic needs) upon request by member countries.  Sri Lanka is currently in the midst of a BoP crisis exemplified by the fact that it doesn’t have sufficient money to balance its external monetary needs like paying for ‘essential’ imports such as fuel, coal, gas, medicines, sugar and other key food items, leave aside having insufficient US dollars to meet its sovereign foreign debt obligations, the latter of which according to the IMF is USD 7 billion for this year alone.

Meanwhile, vis-à-vis voting rights in the IMF Executive Board, the USA and the rest of the West, including Australia and New Zealand, have over 50 per cent voting rights. 

Therefore, powered by a collective vote from the West alone is sufficient for Sri Lanka to obtain a simple majority in the IMF Executive Board to gain approval for a new loan for Sri Lanka, overriding any objections if any from the IMF Staff on account of unpaid loans already owed to it by the island. 

Even if a special 85 per cent majority  vote is required, the additional votes required may be obtained from countries like Japan (6.14 per cent), China (6.02 per cent), Russia (2.59 per cent), India (2.63 per cent),   Saudi Arabia (2.01 per cent), Korea (1.73 per cent),  Indonesia (0.95 per cent), Singapore (0.80 per cent), Malaysia (0.75 per cent), Iran (0.74 per cent),  Thailand (0.67 per cent), South Africa (0.63 per cent), UAE (0.49 per cent), which collectively have a 26 per cent vote and which are well disposed toward the island, while the balance nine per cent may be garnered by other pro-Western countries such as those in the South American ( Mexico for instance has 1.80 per cent voting rights);  Middle Eastern and Sub-Saharan blocs.

Therefore, getting a new IMF loan may be a foregone conclusion, but subscribing to its conditions will add further pain to the masses of this country. But, then, there is no gain without pain.