IMF-led Strategy is the Best Available Option –Economists
By Rajiesh Seetharam
The International Monetary Fund (IMF) led Debt Restructuring Programme is the best available option for Sri Lanka, Verite Research Executive Director Dr. Nishan De Mel said on Monday (6) . Speaking at the Sri Lanka Economic Summit 2021, he said that Sri Lankan economists should draft the bailout plan and obtain the approval from IMF, instead of depending on IMF to do the same.
The Government which came to power in late 2019, slashed VAT and abolished various taxes. This led to drain one-third of the Government’s Tax Revenue in 2020. Consequently Rating Agencies downgraded Sri Lanka, and the country couldn’t access international markets. Sri Lanka has to make a series of maturing ISB payments till 2027, in addition to various bilateral and multi lateral payments.
“Today, If you ask the Private sector, whether they would like to return to pre-2019 tax rates in return for various restrictions like imports , capital controls, USD shortages facing currently, they would definitely prefer the pre2019 tax rates for better times,“ stated Dr. De Mel. As a result of the economic crisis, Assets are being sold at discounted prices, out of desperation for USD, like the Yugadanavi Power Plant deal, where the normal tender procedure was not followed, remarked Dr. De Mel. He added that a debt restructuring programme doesn’t mean that ISB holders aren’t going to get anything, given the huge discounted prices currently trading in, and that a deal with a reasonable haircut could be achieved with ISB holders with IMF assistance, in negotiations.
IPS Executive Director Dr. Dushni Weerakoon, said that options are running out, and suggested to obtain IMF assistance without a Debt restructuring programme. “If Sri Lanka has to go for Debt restructuring, IPS director recommended that an Investment Committee has to be formulated with China, Paris club, ISB holders and other bi-and–multi-lateral Agreements.
“We have to check Clauses on Bond Agreements whether it compels small investors holding ISBs to come for negotiations. In the absence of such a Clause they can go to the Tribunal. “We may have to treat bilateral, multilaterals, ISB holders equally, which makes things complicated, and also may not solve the issues for the following year either.
IMF programme will be about bringing down public debt, where the IMF will have control over interest rates, exchange rate and fiscal policies,” stated Dr. Weerakoon. When questioned regarding how Sri Lanka can go to IMF without a debt restructuring programme, the IPS Director replied, “In the current situation, the best thing Sri Lanka could have done is to have presented a credible Budget in November with a viable three year Plan, which would have regained Investor confidence and paved the way to re-enter international markets, regretfully, this wasn’t done.
“Now, if the Government’s current aim of increasing bilateral facilities and swaps do not materialise as envisaged, then the next option would be IMF assistance without a Debt restructuring programme. Maybe, we can tag on debt restructuring,” he said. Dr. Nishan De Mel agreed that a Debt restructuring programme can be ‘tedious and painful’ but still it can be done, and that some countries have succeeded in the past. “When business encounters turbulence, it seeks a Bank loan, which needs to be substantiated by a Business Plan to have the loan sanctioned. The Credit officer of the Bank cannot be expected to prepare the Business Plan.
Similarly, when opt for the IMF programme and Debt restructuring, Sri Lankan economists should be preparing the Plan in a convincing manner to the IMF. The biggest mistake of many poor Nations is that they leave it to the IMF to draft the Plan. ‘IMF has the power to negotiate with different parties. Two years ago, Argentina benefited from a Debt restructuring programme with IMF assistance. Even the Wall Street wasn’t happy as it had to take a deep haircut, even more than what Argentina expected“, stated the Verite Research Director.