Spotlight: Econ Op-eds in Summary (Week ended 4th August '21)

Snapshots

1. IMF or not: What other options are available for Sri Lanka?

By: Dr. W.A Wijewardena

• The government on numerous occasions have iterated that the government will not seek economic assistance under an IMF program. Past experiences had shown that governments have inevitably resorted to IMF assistance, despite refusing to approach them in the past. Delays in approaching the IMF will only worsen the country’s economic woes.

• The Budget 2022 is set to be ‘business friendly’, ‘market friendly’, and ‘state friendly’. However, the focus on any one of these objectives will result in an adverse impact on another due to trade-offs caused by policy choices. Implementing sound policies, similar to Singapore, on their own accord is what would help the government avoid an IMF program while still maintaining economic prosperity.

• The policy choices made by the government of Singapore included the implementation of a currency board, which prevented excess money printing and helped align political objectives with economic objectives, helping Singapore maintain a stable budget position. A key takeaway for Sri Lanka from this experience is the maintenance of fiscal and monetary discipline as the current economic climate poses a significant challenge in the preparation of Budget 2022.

For the full article – Refer Daily FT

2. Denying IMF support is no solution for Sri Lanka’s economic woes

By Prof. Sirimevan Colombage

• At present Sri Lanka is facing multiple economic challenges. The budget deficit that exceeds 11% of GDP as well public debt service commitments as much as 142% of government revenue have exacerbated the issues. With decreasing foreign reserves and upcoming foreign debt commitments exceeding current foreign reserves, most appropriate decision for Sri Lanka would be to seek assistance from the IMF.

• Governments’ top officials have clearly stated that there is no immediate plan to seek financing from the IMF, arguing that an IMF facility will not assure immediate economic recovery or boost exports and tourism. However, in general IMF programs go beyond lending as it helps a country in long term economic stability with policy reforms. These ensure stability of in the monetary system and help attract foreign investment in the long run.

• The IMF expects the borrowing country to voluntarily agree on the implementation of conditions that ensure macroeconomic stability. These are mainly in relation to the fiscal sector and the balance of payments. The government, however, strongly believes that there are alternate ways to address economic issues faced by the country and will seek these alternatives. Ultimately, it is the policymakers’ decision to decide whether to choose the IMF or continue to borrow avoiding policy reforms.

For the full article – Refer Daily FT

(Compiled by: Promodhya Abeysekara, Malitha Goonerathne & Mariyan Perera)