ECONOMYNEXT – The Asian Development Bank (ADB) expects Sri Lanka not to reverse its International Monetary Fund-led policy reforms despite elections soon, the ADB Country Director for Sri Lanka Takafumi Kadono said.
The island nation has witnessed repeated reversals of policy reforms in the past due to greedy politicians who misled the people to vote for them by sowing the seeds of subsidy mentality with unsustainable debts at expensive borrowing costs, economists say.
That led the country into an unprecedented economic crisis in 2022 with a sovereign debt default. Sri Lanka is still struggling to come out of the crisis.
The IMF has strictly placed some reforms including in state sector enterprises, fiscal and monetary sectors.
Sri Lanka has implemented the painful IMF reforms so far including higher personal income taxes, but economists have raised concerns over the sustainability of the current reforms due to possible changes in the policies in the event of a new president or government comes to power after democratic elections.
“If that kind of reversal happens, we also cannot justify our support,” ADB Country Director for Sri Lanka Takafumi Kadono told EconomyNext on late on Wednesday.
“We do expect these policy reforms to be sustained. So that is our expectation. That is the premise which we are providing our budget support. If they reverse, the whole premise will be collapsed. That kind of policy reversal cannot happen.”
The island nation had sought IMF bailout package for 17 times including the ongoing support. However, the authorities have failed to complete most of the past IMF loan disbursements due to politically motivated contradiction with the global lender’s tight fiscal policies.
Sri Lanka has shown some signs of recovery in the third quarter of 2023 with the economic growth turned to positive from contraction for the first time in seven quarters.
However, opposition political parties have promised to revisit the IMF deal if they come to power.
Higher taxes, soaring cost of living, and lack of salary hike have made President Ranil Wickremesinghe’s government unpopulour among the public, analysts say.
Wickremesinghe has said the country will hold both presidential and parliamentary election by 2025.
Some government politicians have told EconomyNext that the higher taxes would be eased from April and the authorities will try their best to meet the IMF conditions for the third disbursement in June this year.
The presidential polls should be held by October this year, but opposition parties have said President Wickremesinghe is in the process to delay the poll.
However, Wickremesinghe’s office last week said Presidential Election will be held “within the mandated period”, without giving an exact time.
It also said the General Election will be held next year, “according to the current timeline”. (Colombo/Feb 22/2024)