The Good, the Bad and the Ugly

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International Monetary Fund

The IMF was established in 1944, following the fallout from the ‘Great Depression’ of the 1930s and was formulated to build a framework of economic cooperation between countries with 44 founding members, with present membership at 190, and 90 countries are assisted by the IMF presently to counter economic issues.

IMF and Sri Lanka

Sri Lanka joined the IMF on 29 August 1950 and had received facilities on sixteen occasions, firstly on 15 June 1965 of 30,000,000 SDRs and lastly on 3 June 2016 of 1,070,780,000 SDRs. The highest amount granted up to now relates to a sum of 1,653,600,000 SDRs granted on 24 July 2009. SDR is an acronym for Special Drawing Rights, the mode of disbursement by the IMF. At present, USD 1.335 is approximately 1 SDR.

The Good

Contrary to some mischievous beliefs that IMF is a Monster (Billa), the international institution has provided assistance to many countries. It is a pertinent factor that for restructuring other advances received by Sri Lanka, the consent of IMF is of utmost importance. The regret is the delay in negotiating, whereas if the process commenced earlier, by now the issues of concern would have been positively addressed. If so, the present status of Sri Lanka as a ‘bankrupt country’ would not have materialised. It is good that Sri Lanka seeks further facilities from the IMF and also it should be said that ‘better late than never.’

The Bad

Knowing very well that Sri Lanka had sought IMF funds on 16th previous occasions and also fully aware of the fact that there had not been any collateral damage to the economy, why did they procrastinate? The Central Bank functions supersede the intervention of any authority including political. It is the prime regulatory authority in Sri Lanka. This superiority is highlighted by the recent decision to default on a paltry USD 78 million facility, whereas a few months ago bonds to the value of USD 500 million were settled. The smaller default converted the country to a ‘bankrupt’ status and now negotiating with the IMF.

The question that has to be asked is ‘who is responsible?’

The Ugly

Receiving funds from IMF on 16th previous occasions, have we progressed by utilising the facilities granted to recover from the critical issue? Even a child knows that we have not made use of the IMF assistance received.

Now, for the 17th time, we are approaching the IMF for assistance. Has anyone evaluated whether a supposed to be USD 3 billion facility would be the panacea to our economic woes? During the last few months, we have borrowed internationally funds amounting to over 4 billion through credit lines and advances and how long can this go on?

There is no plan to repay the external debts of around USD 60 billion, as one set of the people who matter provide various excuses for the present predicament of the country and another set wait with expectation of IMF assistance, as if it is the only solution. Is IMF assistance the panacea for all our economic ills?

Proposed way forward

Analysis of the options available to generate foreign currency would provide the solution to overcome the grave situation. There are three options, which are foreign remittances from migrant employees, exports, and tourism.

Foreign remittances

Since the country lost more than 50% of around USD 600 million per month to the ‘undial’ system, the Central Bank opting for a ‘policing’ methodology to counter the issue. If incentives are provided to the migrant employees even at the cost of ‘taxpayer money’ to revert back to the banking system, USD 300 million per month is there for the asking.

Exports

Since the economic fiasco unfolded, has anyone addressed increasing exports? No discussions on developing ‘free trade agreements’ to increase exports and assistance for the exporters from Sri Lankan foreign missions or internal operations.

Tourism

The bookings for the winter season had commenced. But no tourist will have the gumption to visit Sri Lanka due to the unsettled situation in the country. The main reason is the unrest due to shortage of oil and gas. If this could be dealt with, the tourists will be back and we could expect a sum of USD 300 million a month.

Priorities

Priority number one will be to seek a short-term facility at any cost for six months of uninterrupted supply of oil and gas. The provider should be explained how to pay back a maximum of USD 500 million worth of oil per month for a period of six months.

Priority number two will be to provide incentives to migrant employees to entice them to return to the banking system and recover the USD 300 million per month lost.

Priority number three will be to seek the inflow of tourists to Sri Lanka based on normalcy when priority number one is achieved to seek the USD 300 million per month minimum level.

At present, only about USD 1,300 million is received through the banking channels per month. If 600 million more (tourism and recovery of lost foreign remittances) could be raised, the rate of exchange will improve.

Then taxpayer will reap the benefits as a prime user of commodities and other merchandise and recover lost tax due to grant of incentives to migrant employees. The whole Nation will benefit by lowering of the prices of all imports such as oil, gas, milk food, other food stuffs, and cement etc. This is the prime reason for the rampant inflation.

(The writer is a Management Consultant )

By G. Ruwan