Backtracking from the IMF program is disastrous

The overwhelming pessimistic portrayal of the state of the nation’s economy by pundits in the mainstream as well as social media over the last week overshadowed the recovery of the economy during the last 18-month period. The imposition of VAT on hitherto exempted commodities and the hike in the rate from 15% to 18% have prompted many to slam the Government for imposing additional burden on the masses.

Currently, the familiar IMF bashing has taken centre stage with various pseudo economists and Leftist political ideologues slamming the Washington-based global lender for prescribing what they claim as anti-poor policy measures. Nevertheless, such pessimists have failed to articulate an alternative course of action to counter the IMF prescriptions. Even regular contributor to this newspaper Dr. Ameer Ali, last month in his column pointed out that none of the parties in the field including the NPP, has put out an alternative plan or package of policies to improve the current situation.

Criticism is easy but delivering results is difficult. Were the living conditions in the island better prior to the IMF program? It is obvious to anybody that things have certainly turned for the good subsequent to the IMF economic bailout package although the economy is not out of the woods. Sri Lanka’s economic recovery got a huge endorsement last week when the internationally reputed fund manager Ruchir Sharma remarked the manner in which Sri Lanka brought down inflation from 70% to a single digit of 4% was very impressive while presenting a guest lecture at the Central Bank. The celebrity investment guru further added that many countries who suffered huge economic crises similar to Sri Lanka are yet to achieve such positive development.

As pointed out by previous editorials, the Government is implementing the Aswasuma program to cushion the impact felt by the poor due to structural economic reforms. The World Bank in a report last year projected that Sri Lanka’s poverty increased to 28% in 2023 from 25% in 2022. The report by the bank commented that poverty reduction could resume from 2024 and continue in 2025, but it depends on continued implementation of structural reforms and a restoration of economic growth and job creation. It must be recalled that Sri Lanka was among the top 5 countries with the highest food price inflation during September 2022 when its food inflation was measured at a staggering 94.9% by the Colombo Consumer Price Index. The economic meltdown that was witnessed in 2022 decimated the standard of living of the population with many families cutting down their food intake and reducing spending on education and health.

Meanwhile, a narrative is driven by influential opinion makers in Sri Lanka that no country has emerged successful by following IMF policy recommendations. India’s experience with the IMF provides the strongest repudiation to such baseless arguments. During an economic crisis in 1991, India had limited options to secure its economic stability. With growing inflation and a balance of payments challenge, New Delhi turned to the IMF, deciding to implement a series of reforms liberalising the economy. Such reforms paved the way for India’s remarkable growth over the past three decades and its emergence as a global economic power.  

Considering the awful plight of the country in 2022, all of us need to appreciate the sense of stability the IMF program has brought about. The IMF is like a doctor at an emergency ward who tries to cure the patient and bring him back to life. Our economy has now entered the General Ward from the ICU, but it is still sick and requires further medication to function as a healthy individual. Patience is required until the disease is fully cured and returning to bad habits like reckless fiscal policy measures would certainly spell disaster or even death.