By. CSNA-Media
President Anura Kumara Dissanayake received plaudits from IMF (International Monetary Fund) Managing Director Kristalina Georgieva during a virtual meeting, over the economic performance of the country. The economy has stabilised and is now performing well,” she said during her meeting with the President. Once cash strapped nation is now coming out of the country as attested by none other than the IMF chief.
After the worst ever economic crisis, Sri Lanka announced in April 2022 that the country would default on its foreign debt. Afterwards, the country carried out fast-tracked talks with the IMF and secured a US $2.9 billion IMF bailout in 2023 following an unprecedented foreign exchange shortage and an economic meltdown.
Now, the country has secured half of that amount. With the change of government, concern was raised in some quarters that the IMF programme would be derailed leading to the collapse of the economy once again.
However, the new government led by the President was awake to the reality that the programme could not be abandoned halfway through. It is kept on track by his government with emphasis on the welfare of the marginalised segments of society. It has now started yielding. All the macroeconomic fundamentals have now been knocked into shape. It has enabled the country to be back on its feet.
“This is so important for people, especially for poor people. We see a remarkable turnaround from the days when it was near collapse,” the IMF Managing Director said during her virtual conversation with the President.
The country is on track, for sure. Still, it is still not out of the woods. The IMF said there is no room for policy errors. The government has a lot of work to perform for the inclusive growth and long-term stability. In this direction, the country sees positive developments.
Recently, the government signed the agreement with Japan to restructure US $ 2.5 billion loans. It will allow the two countries to restart projects, including an expansion of Sri Lanka’s main airport, which were suspended after bankruptcy in 2022. Last month, the IMF released US$334 million, the fourth instalment of the four-year bailout loan, to support the reform programme.
For the real economic growth and full recovery from the economic crisis, it needs to boost exports. For that purpose, investments are needed. Prospective investors do not put their money on the ground here unless it is economically viable, commercially feasible. Likewise, a conducive environment is sought after. Sri Lanka’s performance in the Ease of Doing business is far from satisfactory. Sri Lanka is ranked 99 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings.
The government has initiated action to improve the investment environment of the country. The President is serious on this matter and has vowed to enact new pieces of legislation including an investor protection bill. Otherwise, it will be challenging for new investors to come. In this exercise, Sri Lanka has to compete with the countries in the region such as India, Bangladesh and Vietnam. Sri Lanka can attract some strategic investments because of its global relevance that stems from its geostrategic positioning. However, investments flow into a country otherwise only on economic logic. Therefore, the government has to make Sri Lanka competitive for investors as much as possible.
Alongside, investors consider how their produce from business operations in Sri Lanka can be exported. The market size of Sri Lanka is not big enough. Nevertheless, Sri Lanka is astride India, which is an economy of US $ 3 trillion, and well on its way to become the world’s third largest economy overtaking Germany and Japan in the near future.
A Free Trade Agreement (FTA) is now in place between India and Sri Lanka. There have been calls for ironing out grey areas in it to facilitate exports from Sri Lanka.
The government has given mind to it. Alongside, the government stands ready for resumption of talks on the currently stalled Economic and Technology Cooperation Agreement (ETCA), an agreement meant for further expansion of economic linkages between the two countries. It is a step in the correct direction. Then, it is equally important for the government to resume talks on the proposed FTA with China. The government is also for it.
Also important is to sign the Regional Comprehensive Economic Partnership (RCEP) agreement.
It is a trading bloc involving Southeast Asian nations, Australia, China, Japan, New Zealand, and South Korea. RCEP was conceived to strengthen manufacturing supply chains, boost productivity, and stimulate wage growth and job opportunities across the Asian region. Yet India has reservations about it. If Sri Lanka chooses it join RCEP, it will have to navigate geopolitical concerns involving India. The government is required to act with finesse in this whole process, aiming for stimulation of investments from foreign countries and boosting export growth to new heights for people to get tangible benefits at the end.
In the realisation of these objectives, the government needs assistance of bureaucracy and the general public. Bureaucratic red tape has always been a hindrance in efficient delivery. Today, unlike the governments in the past, the current rule led by President Dissanayake is committed to rooting out corruption. In fact, he received a mandate from people to address this issue once and for all.
The IMF reforms are bearing fruit, and the economic recovery has been remarkable, with Sri Lanka’s real GDP recovering 40 per cent of its loss incurred between 2018 and 2023. Full recovery is still far away. It is possible only if the government performs well in execution. It is taking necessary steps. People can keep their fingers crossed with optimism since the IMF programme has gotten off to a good start with the economy recovering, inflation remaining low, and reserves being accumulated.