No alternative to IMF program: Sri Lankan president on economic crisis

Last week, the IMF approved the release of the second tranche worth $ 337 million to the island nation, bringing the value of disbursements to $ 670 million in the four-year facility

Sri Lankan President Ranil Wickremesinghe on Sunday said that there was no alternative to the IMF programme for the cash-strapped island nation to get out of its economic bankruptcy.

Last week, the International Monetary Fund (IMF) approved the release of the second tranche worth $ 337 million to the island nation, bringing the value of disbursements to $ 670 million in the four-year facility.

Responding to the strong criticism from the opposition to the reforms, President Wickremesinghe, who is also the finance minister, said that he opted for the IMF programme as it was the only option available.

People who make statements to please the gallery are not prepared to take the tough decisions needed. I opted for the IMF programme as it was the only option available, he said and urged all political parties to act responsibly while demeaning the $ 2.9 billion bailout.

He added that tough decisions had to be taken to set in the reforms to correct the economic wrongs of the past.

Some people say they would renegotiate the IMF programme. This is a lie, Wickremesinghe said.

With its reforms, the IMF programme meant that the government set cost-based tariffs for utilities, while several rate hikes on electricity consumption placed hardships on the people.

Wickremesinghe said that to achieve debt sustainability, the country had to raise its revenue and added that the increase of VAT (value-added tax) from 15 to 18 per cent was necessary to raise state revenue to IMF desired levels.

Sri Lanka, which defaulted on its sovereign debt, is still in negotiations with external creditors for concessions on repayment to achieve sustainability, a key component of the IMF bailout.

"On one hand, we had to talk to India and the Paris Club. China was also another side to talk to. We started talks with them based on IMF conditions," Wickremesinghe said.

"We were able to present an acceptable programme of debt restructuring to India, China and the Paris Club. We talked to the US Treasury Secretary; next the Japanese prime minister, the Indian Prime Minister and the finance minister. I went to China to talk to the president and their finance minister, he added.

Asking those who were critical of the IMF programme to come out with a credible alternative plan, Wickremesinghe said, Making popular statements to mislead people would only heal the country's return to bankruptcy.

The IMF reforms, coupled with a high cost of living, are expected to play a significant role in the island's election year in 2024. Wickremesinghe said the Cabinet had to make tough decisions even though most of its members are due to face elections.

Sri Lanka declared economic bankruptcy in April 2022 by announcing its first-ever sovereign default. The island nation was hit by its worst financial crisis in history, with its foreign exchange reserves falling to a critical low and the public coming out on the streets to protest the shortage of fuel, fertilisers and essential commodities.