By Erlina Premadani

The 2022 Spring Meetings of the IMF and World Bank were held on 18-24 April 2022 in Washington D.C. In the meeting, IMF Managing Director Kistalina Georgieva and other senior members of IMF management met with a delegation from Sri Lanka led by Finance Minister, Ali Sabry and Central Bank of Sri Lanka, Governor Nandalal Weerasinghe. These meetings aimed at discussing an early technical program to address an economic challenge.

During the meetings on 18-22 April 2022, the delegation and the IMF team discussed the authorities’ request for an IMF-supported program. The discussion included the recent economic and financial development, the need of implementing a credible strategy to restore macroeconomic stability, and the importance of stronger social safety nets to mitigate the impact of the economic crisis in Sri Lanka.

It was stated by the IMF team that in the future, IMF will support Sri Lanka to overcome the economic crisis by collaborating with the authorities and with all other stakeholders. The recent condition in Sri Lanka was a severe balance of payment and the shortage of fuel and power impacted the economic activities. And also the global food and oil prices rise steadily added to the balance of payments pressures.

There are many factors behind the inflation happened, they are the shortages of goods, fuel price increases, and currency depreciation. This current condition impacts many aspects of Sri Lanka, especially the poor and vulnerable group. Therefore, the IMF which was previously asked for help by the government of Sri Lanka takes an action toward the economic crisis in this nation.

The IMF team assesses the economic situation and identifies policy priorities to take ahead. The discussion focused on restoring fiscal sustainability, protecting the poor and vulnerable groups, ensuring the credibility of the monetary policy and exchange rate regimes, strengthening the financial sectors, and developing structural reformation to strengthen the governance.

IMF has determined that Sri Lanka’s debt is unsustainable and cannot be simply repaid with macroeconomic adjustments. Sri Lanka has raised rates and banks have reduced the credit to stabilize the exchange rate. However, the national currency has fallen due to a surrender requirement. The monetary stability in Sri Lanka happened since 1950 and the general strike faced in 1953 pushed up inflation, reserve losses, and exchange control from 1952.

Therefore, a financial and legal advisor has been appointed by the IMF team to engage in dialogue with the creditors as a significant step toward the debt problem. There would require adequate assurances for the unsustainable debts to be restored.

The IMF team will also continue to monitor the economic and political situation closely and engage with the authorities to formulate concrete measures under the IMF-supported program. The economic and political situation in Sri Lanka needs to be overseen since the crisis impacts the citizens’ belief toward the governance. It would require concrete steps to take by the IMF and the authorities. Fortunately, the IMF reaffirmed a commitment to support Sri Lanka at this difficult time by executing the policies.

It was projected by Prime Minister Ranil Wickremesinghe that Sri Lanka is one of the few nations which is expected to go without food due to the global food shortage this year. This would be such a climax of the economic crisis in this nation. Therefore, it is a warning for Srilanka to prepare for the food shortage and cultivate food crops on abandoned land. There are many lands belonging to the railway’s Department neglected that can be used to grow food. Dealing with this possibility, Prime Minister will talk to the World Bank to get some assistance.

Another solution resulting from the technical discussion was about giving a stronger safety net to the citizens. The IMF team should help the government to restore the public trust. Since dealing with the economic crisis, the major people in Sri Lanka become skeptical of the government. They should be convinced that the situation would be better with the presence of IMF and World Bank.

Therefore, it is needed a concrete step to monitor the political situation in Sri Lanka. Since the political aspect might influence the public trust in government during the worst economic crisis. The IMF could engage with the government and other stakeholders to discuss the monitoring steps. Without concrete actions, monitoring the political situation is just not enough. The government would need a support system from the citizens in overcoming the current problem.

If the government could be trusted again, it would be easier to create a concrete strategy of macroeconomic stability. People need at least to understand that the government is responsible for the current situation. And they have worked hard to deal with the problem by asking for assistance from IMF and World Bank. Thus, the Sri Lankan people could closely cooperate with the government and other stakeholders, such as not creating any chaos or riot even if the situation is getting worse.