On Monday, June 20, a nine-member IMF team arrived in the Sri Lankan capital of Colombo to begin bailout talks with Prime Minister Ranil Wickremesinghe. The island nation of 22 million people is hoping to receive up to $3 billion from the International Monetary Fund to put its public finances on track and access bridge financing. This visit occurs just as the Sri Lankan cabinet has passed an amendment to reduce presidential powers, which it hopes will satisfy the growing number of protesters calling for the resignation of President Gotabaya Rajapaksa. These protesters claim that Rajapaksa’s mismanagement of the economy is to blame for the current economic crisis, which is the nation’s worst since gaining independence seven decades ago. As foreign reserves reach record lows, the lack of foreign exchange has stalled imports of essentials such as fuel, food, and medicines.
On the day of the IMF’s arrival, Power and Energy Minister Kanchana Wijesekera told Reuters that the country had only 12,300 tons of petrol and 40,000 tons of diesel remaining. According to a former energy minister, Sri Lanka’s daily diesel consumption in February stood at around 40,000 tons, showing just how inadequate these fuel levels are. “This IMF visit is very important… For many international bondholders, this will be a key requirement to ensure they come to the table and talk about a debt restructuring in the first place,” Lutz Roehmeyer, portfolio manager at Berlin-based bondholder Capitulum Asset Management, explained to Reuters. Prime Minister Wickremesinghe concurred, stating earlier this month that an IMF program is crucial to access bridge financing from sources such as the World Bank and Asian Development Bank.
But Wickremesinghe and many others have been waiting much longer than this month for the IMF to get involved. Throughout the entirety of the economic crisis, assistance from the IMF and other global actors has been consistently cited as a key part of any solution to Sri Lanka’s financial struggles. The slow response is in large part due to the government and central bank’s refusal to seek assistance from the IMF for months. This wait will make it even more difficult for the nation’s economy to recover. While Sri Lanka is hoping for the IMF to offer a quick route to recovery—their goal is to reach a preliminary agreement by the end of the visit on June 30—any significant relief will likely take several months. While this visit could represent the start of a solution, the government needs to make additional efforts to ensure its success.
The amendment recently passed by the Sri Lankan cabinet, which aims to limit presidential powers, will hopefully be another part of that solution, if it is approved by Parliament in a two-thirds majority vote. The proposed 21st amendment seeks to undo changes made by the 20th amendment, which gave President Rajapaksa extensive powers when he passed it in October 2020. That amendment allowed the president to hold ministries, appoint or fire ministers, and made the president the appointing authority of the elections, public service, police, human rights, and bribery or corruption investigation commissions. The 21st amendment would give some of those powers back to Parliament and restore independence to important commissions, providing a long overdue restoration of power to the democratic processes that Rajapaksa sought to eliminate.
Between the IMF visit and the 21st amendment, Sri Lanka is potentially on the verge of major economic and political recuperation. Should the nation receive a large enough IMF loan, other foreign actors will be more likely to get involved in much-needed long-term economic development. However, the IMF loan alone is not enough. The government will need to continue its efforts at reviving the economy in a way that will both help Sri Lankans in the short-term (resolving the fuel shortage) and prepare the economy for long-term productivity (making the foreign exchange reserve more resilient than before). This is, of course, easier said than done, but if power is restored to Parliament via the 21st amendment, the government will be better equipped to ensure success. But first, everything depends on the IMF visit and Parliament’s amendment vote; the outcome of these two events will determine just how long this crisis continues for.
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