Sri Lanka’s economic recovery will be dependent on IMF-supported reforms, but Finance Minister Ali Sabry stated that the government will not disregard the country’s poor.
Before departing for Washington, DC, where he would lead the Sri Lankan delegation in negotiations with the International Monetary Fund, the newly appointed Minister spoke to The Hindu. “The country’s revenue has been drastically reduced, and we are still striving to recover from the current economic catastrophe.” “Reforms will be critical,” he stated.
Mr. Sabry, who served as Justice Minister in the previous Cabinet, resigned with his Cabinet colleagues in early April, amid rising public pressure to remove the President, Prime Minister, and their families from office for “mismanaging” the issue. In a “new” four-member cabinet, President Gotabaya Rajapaksa quickly named him as Finance Minister. Mr. Sabry reportedly resigned again, but the President refused to accept it.
Colombo is banking on an IMF program to boost its chances of borrowing in the international market after Sri Lanka decided to default on its foreign debt, which totals around $50 billion. Sri Lanka has received IMF assistance at least 16 times.
“We believe there is a need for a poverty alleviation program,” Mr. Sabry said of what Sri Lanka would present to the international financial institution, which is anticipated to offer money based on severe criteria. A safety net for the impoverished is unquestionably required. “We can’t turn our backs on the poor,” he remarked. According to a recent World Bank assessment of Sri Lanka, at least 5 lakh individuals fell into poverty during the epidemic years as a result of substantial job and income losses.
It’s unclear how the administration, which had been hesitant to seek IMF aid in the past, will now combine the Fund’s probable conditionalities of fiscal discipline and judicious state expenditure with growing public hostility.
Sri Lanka’s PM addressed nation
Prime Minister Mahinda Rajapaksa’s recent address to the country, in which he asked demonstrators to be “patient,” showed that the government is feeling the heat. Mr. Mahinda further remarked, “No matter how honorable the principle of organic fertilizer is, it is not the time for it to be applied,” in the government’s first public acknowledgment that the President’s rapid policy move to organic farming had backfired. As a result, the fertilizer subsidy will be reinstated,” suggesting a complete policy reversal. Sri Lanka would also have to set aside approximately $400 million per year for chemical fertilizer imports.
Mr. Sabry, however, indicated that the government was willing to make strong decisions immediately, saying, “We cannot think about party politics now when the country requires urgent attention.” We must prioritize the future of our country over all else, even if it means taking political risks.”
India’s Lifeline
Mr. Sabry is also scheduled to meet with his Indian counterpart, Finance Minister Nirmala Sitharaman, on the sidelines of the Fund’s Spring meetings next week, to discuss “further possible assistance” from India, as Sri Lanka grapples with a severe economic downturn that has resulted in record inflation, severe food shortages, and a massive uprising of angry citizens. This year, India has provided $ 2.4 billion in aid, and Colombo has requested extra support from New Delhi, including a $ 500 million credit line for fuel imports and assistance in arranging “bridge finance” to cover this year’s import bill.
“To manage our reserves for the rest of the year, we’ll need roughly four billion dollars.” We’re hoping for help from the International Monetary Fund, the World Bank, and bilateral partners like India and China. Mr. Sabry stated, “India has been a lifeline to us, and I look forward to discussions with Ms. Sitharaman about more possible support from India, our regional leader.”
China has stated that it is “studying” a new request for $ 2.5 billion in help from Sri Lanka, in addition to the $ 2.8 billion it has provided since the onset of the pandemic. When asked about the request’s progress, the Minister stated that “negotiations are ongoing.”