PPolitical stability and assistance from the International Monetary Fund (IMF) are essential to resolve the unprecedented severe economic crisis. The current widespread social unrest and political instability are serious obstacles to economic recovery.
Political and social unrest
How the current social upheaval and political unrest will be resolved is uncertain. What is certain is that widespread social unrest and political instability are serious obstacles to economic recovery.
Social unrest and political protests became widespread. In the middle of the week, they took on huge proportions in Galle Face and in many parts of the country. They are asking for one thing: the resignation of the president and the government.
This call has been endorsed by ordinary people, professionals and religious leaders, including the Mahanayakes. The president only responded by admitting he had made two terrible mistakes and a new cabinet of inexperienced ministers. How will this solve the crisis?
The president admitted to having made two serious mistakes: not having approached the IMF much earlier and not authorizing chemical fertilizers for agriculture. The admission of such monumental mistakes, especially the fertilizer fiasco, would have been followed by the resignation of any Democratic leader.
The President’s response was a new Cabinet. How would that make it acceptable for him and his brother to stay in office? How will the current political impasse be resolved?
Resolving the political crisis is imperative for economic recovery. The longer the political deadlock drags on, the more unbearable the economic woes of the people. Massive starvation, malnutrition and further deterioration of the economy are inevitable.
Current conditions are a threat to external finances. A further deterioration in the balance of trade and payments is very likely.
Manufactured goods for export are penalized by shortages of raw materials, power cuts, unavailability of diesel and gas, and difficulties in transporting workers. These export earnings are declining. They would decline further with the reduction in foreign revenue from ICT services that are disrupted by power outages.
On the other hand, import spending is increasing due to rising costs of our essential imports like food, fuel, pharmaceuticals, raw materials and fertilizers.
The new year was heralded by the news that the country had declared itself bankrupt. Most commentators considered it one of the saddest days in the country’s history. The country’s record of never defaulting on debt repayment has been shattered.
However, there was a rationale for this decision. The meager reserves available were used to import basic necessities instead of repaying debts. This could alleviate, to some extent, the terrible plight of people who lack the basic necessities to live. India’s lines of credit are larger. Specifically, we didn’t have the funds to pay anyway and it was a more respectable option.
There is no doubt that IMF assistance is needed to resolve the deepening financial and economic crisis in the country. Are we too late and never able?
At the time of writing, a Sri Lankan delegation is seeking IMF assistance to pull the economy out of its current perilous state.
Hopefully they can get help from the IMF for at least emergency assistance through its Rapid Financial Instrument (RFI) to overcome the current difficulties and help in the economic stabilization of the country with an expanded credit facility more late. The Indian government is extending its full cooperation to secure IMF assistance.
A recent IMF statement said the IMF is “deeply concerned about the current economic crisis in Sri Lanka and the hardships faced by the people, especially the poor and vulnerable.”
However, the statement goes on to say that “IMF staff determined last month during an annual economic review that Sri Lanka’s public debt is unsustainable, and the country needs to take steps to restore debt sustainability before any IMF loan, including emergency RFI.”
“Such restoration of debt sustainability typically requires restructuring or reprofiling of public debts, which in the case of Sri Lanka would require the cooperation of China, one of its largest bilateral creditors,” he said. he declared.
RFI expectation also diminished as the statement clarified that the IMF “has made extensive use of low-conditionality RFI loans to assist countries during the COVID-19 pandemic and has provided such loans to alleviate balance issues. payments after natural disasters, conflicts and commodity price shocks.
Will the IMF change its position when Sri Lanka is in dire straits?
The current political instability is a serious constraint to obtaining the much-needed IMF facility, which is essential for resolving the economic crisis.
Some have argued that political stability is not a prerequisite, as other politically unstable countries have obtained IMF assistance. They may be referring to the recent examples of Lebanon and Pakistan. The first has elected a new government and the second has not yet received all the assistance.
Political stability is necessary because the IMF requires assurances that the government will commit to respecting the conditions of the IMF loan. More importantly, the structural adjustment program for economic stabilization and recovery cannot be implemented without a stable government.
The dire state of the economy, shortages of basic necessities and the unbearable cost of living have led people from all walks of life, religions and communities to unite in calling on the president and the government to step down. Widespread social upheaval is gaining more and more support. The end of these demonstrations is uncertain.
These upheavals and political instability are severe constraints to the resolution of the economic crisis. Expected IMF assistance is uncertain if political conditions are not conducive to the implementation of an IMF reform and recovery program. The future of the nation is dark and uncertain. The livelihoods of the population are seriously threatened.
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