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What are you going to discuss with IMF next month?: Ranil Wickremesinghe

23 Nov 2021

  • Ranil claims GoSL set to meet IMF in December
  • Wants Govt. to reveal specifics of meeting
  • Cabraal yet again rules out seeking IMF assistance
BY Shenal Fernando United National Party (UNP) Leader and former Prime Minister Ranil Wickremesinghe yesterday (23) claimed in Parliament that Sri Lanka will be engaging in Article IV discussions with the International Monetary Fund (IMF) in December, and called on the Government to disclose to Parliament the specifics of what will be discussed with the IMF. IMF Article IV discussions are bilateral discussions generally carried out annually between an IMF team of economists and the governments of member countries, where the IMF team visits the country and collects economic and financial information to discuss the country’s economic and financial policies with government and central bank officials. Wickremesinghe further claimed that Parliament and the Monetary Board must be informed about what will be discussed and that Parliament has the right to know what is being discussed, as per the Constitution and the Articles of Agreement with the IMF. “The ideas of the IMF, ideas of the Government, what was agreed upon, and on what parties disagreed upon must be publicised,” added Wickremesinghe. Explaining further, he pointed out that these discussions are important and as such must be disclosed to Parliament. However, when The Morning Business questioned Central Bank of Sri Lanka (CBSL) Governor Ajith Nivard Cabraal yesterday, he once again denied seeking IMF support, stressing that the claim is “completely untrue”. However, he did not respond to our question as to whether there will be any discussions with the IMF next month. Wickremesinghe further called upon Minister of Finance Basil Rajapaksa, who was absent in Parliament at the time, to disclose what his intentions are, what will be discussed with the IMF, and how the current foreign exchange volatility will be addressed to ensure stability. He further pointed out that the Sri Lankan rupee had depreciated to 240 against the US dollar and that it is crucial that the exchange rate be controlled, which requires assistance from the IMF. He also called on the Government to disclose if there are any other alternative methods to control the exchange rate. According to Wickremesinghe, the foreign exchange depreciation is the most important issue facing the country. He claimed that the public has lost its trust in Parliament, as both the Government and the Opposition have failed to provide any viable solutions to the issue. He further claimed that the people have no trust in the Government nor do they believe that Parliament can bring a new government, and suggested that this is why the youth are leaving this country. He predicted that the current economic problems will ultimately result in a political explosion. “Therefore, if the Government wants to avoid such a grave situation, they should first ask the Minister to disclose to Parliament what has been discussed in the Article IV discussions with the IMF and from there we can openly exchange ideas going forward,” added Wickremesinghe. According to a KPMG report released in November, the Sri Lankan rupee had depreciated by 2.6% in 2020 and by a further 8.9% against the US dollar from January to October 2021. Depreciation of the Sri Lankan rupee against the euro, Australian dollar, sterling pound, and Indian rupee was also witnessed. The CBSL has implemented measures to address this exchange rate volatility, such as restrictions on vehicle and non-essential goods imports, mandatory conversion of export proceeds receipts, and introduction of special deposit accounts (SDAs) with higher-than-market interest rates for dual citizens. However, such measures have so far proved ineffective due to the debt sustainability issues plaguing the country, along with the dire economic conditions created by Covid-19. On 31 August, the Sri Lankan rupee hit a record-low selling at Rs. 204.89 against the US dollar, as per data from the CBSL. As of recently, considering the dire economic conditions of the country, net-negative foreign assets, depreciating foreign currency reserves, and the volatility of the exchange rate, there have been rumours that the Government may turn to the IMF for assistance. Meanwhile, the Cabinet of Minister last Monday (15) discussed the need to explore the possibilities of securing a bailout from the IMF due to the increasing foreign reserves crisis. Sri Lanka’s foreign reserves have, as per CBSL data, fallen to $ 1.6 billion by end-October from $ 2.1 billion by end-September. In this meeting, Minister of Energy Udaya Gammanpila cautioned that the country was treading a very dangerous path if it didn’t formulate a proper plan to address the foreign reserves crisis. He proposed that the Government approach the IMF. “Although the IMF will lay down conditions in order to support us, we are still in a situation where we could bargain and negotiate the conditions,” Gammanpila explained to the Cabinet, adding that delaying such a move would put Sri Lanka in a worse situation that might compel the Government to go begging to the IMF. “Once we are in a worse situation, a few months down the line, we will not be in a position to negotiate and will have to accept their (IMF) conditions,” added Gammanpila. However, Minister of Trade Dr. Bandula Gunawardana, Minister of Water Supply Vasudeva Nanayakkara, and Minister of Finance Rajapaksa opposed seeking IMF assistance, claiming that the Government would not be able to persuade the people to accept the IMF’s conditions in return for financial support. Nanayakkara observed that based on past experience, the IMF would call for the slashing of subsidies and harsh measures to bridge the budget deficit. Dr. Gunawardana also agreed and observed that the people would not be able to bear the conditions. The Cabinet of Ministers could not reach an agreement on whether the Government should approach the IMF or not. It has also failed to propose any alternative programme to address the existing economic situation.

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