IMF programme insufficient – Ex Central Bankers

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The IMF programme, raising interest rates, measures to curb parallel foreign exchange market are steps in the right direction, which may bring stability to the economy and help in importing essential goods, however structural reforms are necessary to bring long term economic sustainability to Sri Lanka, stated former Central Bank Governor Dr. Indrajit Coomaraswamy.

Speaking at a seminar on the current economic crisis, he said, “Sri Lanka has been to the IMF 16 times. We are living beyond our capacity. The IMF programme is meant to reduce excess demand, which may reduce our growth. To counter the growth contraction we need major structural reforms,”

He added, “Unsustainable fiscal policies are the main reason behind the economic crisis. Revenue was 20% of GDP in the 1990s, which has now fallen below 10%. One of the main reasons for decline in revenue as a percentage of GDP was tax concessions which were justifiable during the war period, but after the war, sweeping tax concessions meant loss of revenue to the government. Instead of offering tax concessions to attract investments, government should make structural reforms in the public sector, SOE’s and administration.”

Dr. Coomaraswamy noted that Sri Lanka should have approached the IMF at least by December 2020. “The IMF today is different from what it was 20 years ago, as it looks into broader issues like sustainability of the country. If Sri Lanka had approached the IMF by December 2020, we would not have to go for a debt restructuring programme, or could have dealt with the issue with a minor restructuring programme.”

Speaking at the seminar, the former Central Bank Deputy Governor W.A. Wijewardena, said an IMF programme is necessary, but not sufficient to get out of this economic crisis. “The IMF will help us to stabilise the economy in the financial sector, help us to overcome balance of payments and inflation. However, it may not help us to develop the real sector, something which can only come from the hard work of the citizens. We need to increase productivity by introducing new technologies.”

By Rajiesh Seetharam