Marching towards economic recovery

The debt-restructuring deal agreed with the Paris Club and India is a huge relief to the country and represents a landmark in terms of its quest towards economic recovery. The agreement takes into account $ 5.9 billion of outstanding public debt and includes a combination of long-term maturity extension and a reduction in interest rates. The noteworthy development comes in the backdrop of preliminary debt agreement entered into with EXIM Bank – China, last October over $ 4.2 billion of arrears.

The accords reached with the sovereign lenders would enable the Government to obtain the $ 334 million second tranche of the IMF program consequent to the IMF Executive Board’s first review. Since the Extended Fund Facility arrangement was reached with the Washington-based Fund in March this year, NGOs, trade unions, as well as leftist ideologues have criticised the Government for unpopular initiatives that were undertaken particularly with regard to fiscal policy. However, those pessimists have failed to articulate an alternative course of action to counter the IMF prescriptions. 

Despite such criticism from groups with vested interests, the entire nation has experienced a considerable degree of calmness and order in the day-to-day lives as a result of the prudent policies and measures implemented by the Wickremesinghe administration to restore macroeconomic stability. The severe shortage of essentials which crippled the country has disappeared, and the horror tales of people dying while languishing in queues to buy bare necessities like gas cylinders and fuel are no longer heard of.

Raising the feel good factor, recent economic indicators portray some signs of mild economic recovery. For the fifth consecutive month, outstanding credit to the private sector by the banks grew during October in monthly terms as per the Central Bank’s (CB) latest Monetary Policy Review. Furthermore, last October imports of $ 1,610 million was the highest since April 2022 import figures of $ 1,699 million and the latest data shows a notable increase in investment good imports. 

Last week, Health Minister Dr. Ramesh Pathirana remarked in the Parliament that the number of malnourished children as per a survey carried out in June 2023 was 15,763, reflecting a decline of 2% from the corresponding figure reported in 2022 – 18,420. Many have forgotten that Sri Lanka was among the top 5 countries with the highest food price inflation during last year September when its food inflation was measured at staggering 94.9% by the Colombo Consumer Price Index. Yet, in a complete reversal, last month, the food deflation (in terms of year-on-year) continued for the fifth consecutive month recording 3.6% from 5.2% in October 2023, providing a huge relief to the downtrodden segments of the society.

As once described by this column, the prudent monetary policy stance maintained by the Monetary Authority under the leadership of Governor Nandalal Weerasinghe together with other Monetary Board members, has ensured that inflation fell to 3.4% as of last November from the overwhelming highs of almost 70% recorded in 2022. Various pundits slammed the CB Chief for hiking rates, but if not for the tough monetary policy, the nation would have experienced the same fate of Argentina or Zimbabwe, causing enormous political and social mayhem.

The Government’s economic reforms got a huge endorsement when Montek Singh Ahluwalia – a former Deputy Chairman of India’s Planning Commission – declared at the Sri Lanka Economic Summit 2023 that the Island does not need many lessons from other countries as the reform agenda set out by President Ranil Wickremesinghe is impressive and comprehensive. Both former Indian Premier Dr. Manmohan Singh and Ahluwalia are considered as architects of India’s economic reforms launched in 1991 – which set the foundation for the modern, successful Indian economy.

When the President became Head of State, people expected him to provide the leadership to revive the economy from the depths of despair it was going through. Thus far, he has performed commendably in accomplishing that task.