What lies ahead from under the barricades

The month that ushers in the New Year for the Sinhalese and Tamils brought along with it many new developments. From boisterous protests to equally wild curfews and social media restrictions, the people of Sri Lanka cast their voices, and received an answer. On 4 April, following the resignation of most Cabinet ministers, President Gotabaya Rajapaksa reshuffled the Cabinet ministerial portfolios and even extended an invitation towards other parties to fill in the gaps. 

The market showed vital signs at the unexpected news of Central Bank Governor Ajith Nivard Cabraal stepping down. While some members amusingly got dealt the same hand, some went on to reject it no sooner they accepted it. 

The appointed Finance Minister Ali Sabry, who was previously Minister of Justice, tends his resignation less than 24 hours after being appointed following the Cabinet reshuffle. The Minister just managed to table the IMF report for discussion at yesterday’s parliamentary session, amidst cries to postpone debates to after a functioning Cabinet and interim Government is appointed. 

While demands for the head of State to step down fell on deaf ears, with the abrupt conclusion of Parliament, it is apparent that current governance operates in limbo while the economic crisis rages on. “Be careful of what you wish for, it might come true” seems to ring in everyone’s ears as the culprits for the chaos try to step aside. 

The public watch and conspire that this perhaps orchestrated set is to flip opinions, as the proverbially ‘known devils’ posit a better outcome than the uncertainty and delay of the unknown angel. The IMF needs some deity to deal with.

Another country in the region finds itself caught in the twines of a Parliament kerfuffle and the IMF: Pakistan. Following a no-confidence vote against premier Imran Khan the way forward is now to be determined by their Supreme Court while inflation rises and the external sector dips. Initially, awaiting the IMF verdict had created a road block on Pakistan’s potential foreign fundings. 

The $ 263 billion large economy is expected to make do with $ 5 billion for the upcoming months, averting a crisis like situation. A financing gap of $ 2 billion would emerge from the IMF external financing through approval of a seventh and eighth review under a $ 6 billion Extended Fund Facility that is likely to be delayed. Pakistan will have to manage another $ 3 billion from bilateral donors to bridge this financing gap in the interim.

Given that the ink has dried on this IMF deal, the situation looks less bleak. IMF Resident Chief Esther Perez Ruiz stated: “The IMF looks to continue its support to Pakistan and, once a new government is formed, we will engage on policies to promote macroeconomic stability and enquire about intentions vis-a-vis program engagement.” Therefore, even without a stable Government, there are no plans to suspend the program; the worst-case scenario is a delay.

A contrast can be seen when talks that began in May 2020 stalled for months after IMF concluded the Article IV consultation with Lebanon. Similar to Sri Lanka right now seeking for support under Article IV, the Government failed to appropriately sign on the dotted line. Under these Articles of Agreement, the IMF has a mandate to exercise surveillance over the economic, financial and exchange rate policies in order to ensure the effective operation of the international monetary system. 

The Lebanese Government that had not met since October due to a political dispute, must also sign off on the deal for an international bailout deal to be finalised in order to regain some economic control. All in all, Sri Lanka finds itself yet again, at an economic crossroad. Regardless of who the next CB Governor or Finance Minister is, the IMF deal gets colder. The need to sacrifice short term epic political victories for longer term stable economic gains must be considered; time is of the essence.