Key Assessments
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Protests seen in SL could be repeated in other countries, if Governments fail to support poor-IMF chief (May 22, 2022) Governments need to subsidise the cost of food and energy for the poorest members of society and without the correct government support the protests seen in Sri Lanka could be repeated in other countries, the head of the International Monetary Fund (IMF) has warned. Kristalina Georgieva told the BBC that people around the world are struggling with the rising cost of living. Kristalina Georgieva said support needs to be provided "in a very targeted manner, preferably by providing subsidies directly to people". |
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Grey market crackdown alone could bring some sanity to forex market: CB (May 13, 2022) Re-channeling foreign exchange flows into the formal banking sources alone could solve the bulk of the problems in the domestic foreign exchange market liquidity as over 25 percent of foreign currency transactions take place outside the banking system, according to the Central Bank Governor. Sri Lanka from the second half of last year took a slew of measures to discourage the informal channels of foreign exchange transactions and thereby attempted to direct such foreign exchange flows—both inflows and outflows—via the formal banking channels, yet with limited success. |
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Demystifying the IMF | Prof. PremaChandra Athukorala (May 6, 2022) The International Monetary Fund (IMF) was set up in 1945 to help member countries resolve balance of payments difficulties. Unlike the other multilateral and bilateral lenders who lend to the government of the borrowing country, the IMF always lends funds to the Central Banks of the country. The IMF loans are strictly for the purpose of building international reserves to meet external payments. Therefore, borrowing under IMF programmes does not have any direct impact on domestic money supply and hence on domestic inflation. |
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The IMF, Debt Restructuring and Fiscal Reforms: What to Expect and What to Prioritise (April 26, 2022) The most critical for Sri Lanka in terms of the economic outlook is to gain some sense of macroeconomic stability. And on that front, we no longer can afford sequential reforms, and I think we must work on several fronts, simultaneously. And critically coordinated action on three fronts is essential; the monetary policy front, the exchange rate front, and the fiscal front. |
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IMF policy prescription threatens welfare state-IPS Director (April 21, 2022) IPS Executive Director Dushni Weerakoon noted that the IMF policy prescription would come at a severe cost to the welfare state of the country. She further added that the current economic crises that had befallen the country were greater than anything witnessed even during the civil war or tsunami. Weerakoon was speaking briefly on April 19 in her remarks at the 13th South Asia Economic Summit held in New Delhi. Weerakon signalled that the state if it engaged with an IMF program would have to make very difficult cuts in social spending that are essential to maintaining the livelihoods of a significant part of the population. |
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IMF says any loan to Sri Lanka requires debt sustainability (April 21, 2022) The International Monetary Fund said discussions with Sri Lanka on a potential IMF loan program are at an early stage and any deal would require "adequate assurances" that the island country's debts can be put on a sustainable path. In a statement emailed to Reuters, IMF Sri Lanka Mission Chief Masahiro Nozaki said that IMF Managing Director Kristalina Georgieva discussed lending options and policy plans with a Sri Lankan delegation on Tuesday. |
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It will take six to nine months for first IMF tranche to come It could be six to nine months before the first tranche from the International Monetary Fund (IMF) could be expected, one of the government’s advisors said yesterday. Talks between the IMF and a Sri Lanka delegation-led by Finance Minister Ali Sabry on an economic recovery package will get under way in Washington DC tomorrow.One of the three advisors, Shanthayanan (Shanta) Devarajan, who will be part of the delegation, answered questions posed to him by the Sunday Times. He is Professor of the Practice of International Development at the Edmund A. Walsh School of Foreign Service, Georgetown University.
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Sri Lanka on the Brink: How the Pandemic and the War in Ukraine Led to Economic Collapse (April 14, 2022) Sri Lanka is facing an economic meltdown. The COVID-19 pandemic hurt many low- and middle-income countries, but the island nation of 22 million people stands out as one of the hardest hit. Sri Lanka is experiencing the worst economic downturn of its history, grappling with staggering levels of government debt, spiraling inflation, and a foreign exchange crisis that has led to the scarcity of many essential goods. Long lines snake outside gas pumps. The power cuts out frequently. Shops are running out of medicines and other necessities. In April, the government defaulted on its external debt, paving the way for a loan program from the International Monetary Fund. |
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Avoiding a tsunami of debt (April 11, 2022) Sri Lanka’s present economic situation is such that the contribution of every party is crucial, and the Government, the authorities, and economists have a special role in addressing the situation. During the past few months, independent economists, as well as economists representing the Opposition parties, have been demanding immediate and concrete action from the Government to address the prevailing situation. The key points they raised were improving exports, placing restrictions on non-essential imports, encouraging foreign currency inflows, discouraging non-official foreign currency transfer systems, curtailing the undisciplined printing of money, controlling inflation, and debt restructuring. |
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Floating currency: Depreciating rupee not really helping exporters (April 9, 2002) Despite the Sri Lankan Rupee’s sustained plunge, pushing Rs. 300 against the US Dollar, exporters are not gaining any significant benefits, The Sunday Morning learns. This is due to the depreciating rupee dramatically increasing the production costs of manufacturers. Speaking to The Sunday Morning, Colombo Tea Traders’ Association (CTTA) Chairman Jayantha Karunaratne stated that exporters were initially lobbying for the Sri Lankan Rupee to be floated during the period it was forcibly kept below Rs. 203 by the Central Bank of Sri Lanka (CBSL). |
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Sri Lanka Economic Crisis has Created a Political One (April 9, 2022) Until very recently Gotabaya Rajapaksa, still Sri Lanka’s president as The Economist went to press, was secure in his job. After all, he had done much to consolidate his power. Following his election in 2019 he dissolved the legislature and filled the government with relatives and cronies. A thumping win for his coalition in parliamentary elections in 2020 enabled him to change the constitution, handing himself even more power. |
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Social turmoil is Sri Lanka’s biggest risk, ex-World Bank official says of economic crisis (April 8, 2022) “Social turmoil is the biggest risk. That’s why I keep emphasizing the point about cash transfers. As you can see on the streets — the people are angry,” said Devarajan, who is now part of a new government advisory panel formed to tackle the country’s debt crisis. Devarajan said a cash transfer program aimed at helping the poor, coupled with a reduction of subsidies on food and fuel, will be critical to averting a collapse of Sri Lanka’s debt-ridden economy. |
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What Sri Lanka's IMP program should look like? (April 7, 2022) Sri Lanka should go for a tight reserve money program in any International Monetary Fund program with progressive falling ceilings on domestic assets, and junk the flexible inflation targeting non-regime that has brought economic chaos to the country. The highly discretionary flexible inflation targeting a flexible exchange rate (soft-peg) had brought three currency crises in 7 years, caused misery to 20 million people and left politicians holding the can. |
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Sri Lanka needs ‘bridge financing’ to last next six months, says Indrajit Coomaraswamy (April 4, 2022) Sri Lanka needs to take steps on getting to a framework programme with the IMF, restructure its external debt and bring some bridge financing to last for next six months until negotiations with the IMF on external debt is completed,”former central bank governor Dr. Indrajit Coomaraswamy said recently, at a forum hosted by CT CLSA. “IMF won’t be able to transact with Sri Lanka until we fix the unsustainable situation in the country,” he said. Dr. Coomaraswamy highlighted the fact that IMF may include fiscal consolidation in a programme of debt restructuring for Sri Lanka. |
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With or without IMF…| Dr. Sirimal Abeyratne (April 3, 2022) Whether Sri Lanka should seek IMF assistance or not! This has been a major question which has baffled the government within as well as outside. It has been a “temporary question” anyway, because the time is coming for keeping all disputes aside, no matter how painful it would be particularly for those with vested interests. However, it is not the main question that Sri Lanka must worry about right now. Before we turn to the main question at hand, let me elaborate the background, which is interesting. |
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IMF better choice than costly loans from friends, says former Sri Lanka Central Bank executive (April 1, 2022) | Dr WA Wijewardena With blackouts engulfing at least half of the day, long queues waiting at fuel pumps, and surging inflation driving people to seek refuge in greener pastures beyond the frontiers, Sri Lanka’s economic crisis cannot be brushed under the carpet anymore.To understand what really precipitated this crisis, Moneycontrol spoke to Dr WA Wijewardena, the former Deputy Governor of the Central Bank of Sri Lanka (CBSL). |
Currency Board: A Solution to Sri Lanka’s Economic Crisis? Asanka Wijesinghe (March 31, 2022)On 08 March, Sri Lanka devalued the rupee against the US dollar, entering into a floating exchange rate regime. The Central Bank of Sri Lanka had to abandon the pegged exchange rate as defending the rupee with dwindling reserves was impossible. The inter-bank exchange rate shot up once the banks were assured that the exchange rate was floated. The initial shoot-up was followed by further rallying of the US dollar reaching close to Rs. 300 per USD. With the gradually weakening rupee, inflation is also ascending to worrisome levels calling for radical changes, including adopting a currency board. This article discusses the effectiveness and suitability of a currency board for Sri Lanka in the current macroeconomic context. |
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Sri Lanka economic crisis: The way out won't be painless | W.A. Wijewardena (March 27, 2022)
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Collapse of the rupee: Is it sudden or orchestrated by Central Bank? | W.A. Wijewardena (March 21, 2022) Sri Lanka rupee has collapsed in the foreign exchange market in the first week of March. Before that, the Central Bank has published data every day in its website that the buying and selling rates of the dollars by commercial banks as Rs. 197 and Rs. 203, respectively, though dollars were not available at those rates in the banking system. If anybody wanted dollars in a hurry, he had to look for them in the parallel black market at which dollars were bought and sold freely at rates ranging between Rs. 250-260. |
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Sri Lanka President says seeking IMF bailout for forex crisis, debt | EconomyNext (March 16, 2022)
Sri Lanka will seek International Monetary Fund support, President Gotabaya Rajapaksa said as the country reels from foreign exchange shortages due to unusually high levels of money printed to keep interest rates low. Read More |
Who thinks IMF can bail out Sri Lanka? | Shenali Waduge (March 15, 2022)Sri Lanka is $35billion in debt. It is a debt that did not happen overnight. It is a debt that IMF will not solve & cannot solve. Taking loans without a plan & internal measures to curb & cut expenses is not going to help or solve Sri Lanka’s debt situation. Taking loans and burdening the middle class and poor is unforgiveable while offering tax holidays and incentives to the rich & privatizing the little state owned enterprises we have left. |
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Sri Lanka reverses course, seeks financial support from IMF | Aljazeera (March 15, 2022)
Sri Lanka is seeking financial support from the International Monetary Fund, reversing the government’s earlier resistance as efforts to bolster its foreign exchange reserves and manage looming debt payments have been complicated by the war in Ukraine. President Gotabaya Rajapaksa’s government initiated deliberations with visiting IMF staff Monday, according to people with knowledge of the situation. Officials from Sri Lanka plan to present policy proposals to the lender in early April, said the people, who asked not to be identified as the details aren’t public. Read More |
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Russia-Ukraine war Impact on Sri Lanka | Srimal Abeyratne (March 13,2022)
Before it dismantled in 1991, the Soviet Union comprised 14 countries from both Northern Asia and Eastern Europe, extending over 20 million square km of land unevenly occupied by over 290 million people. Its official title was the Union of Soviet Socialist Republics (USSR) which had Russia as the most influential and most populated partner country of the Union and, of course, Ukraine as its second most influential partner country. |
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Are we at a turning point in resolving the economic crisis? | Nimal Sanderatne (March 13,2022) Recent changes in policy raise the question whether these would resolve or even mitigate the deepening economic crisis. A related issue is whether there is a new resolve to mitigate the economic crisis? Are we at a turning point in policies to resolve the growing economic crisis? |
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Sri Lanka to hold all-party conference on economic situation; President to preside over | W.A. Wijewardena (March 13, 2022) COLOMBO: An all-party conference in Sri Lanka will be held later this month to discuss the current economic situation in the country, media reports said on Sunday. Sri Lankan President Gotabaya Rajapaksa will preside over the conference, media reports quoted the presidential secretariat as saying. The meeting will be attended by Prime Minister Mahinda Rajapaksa and figures from all political parties represented in the parliament. |
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Economic and financial crisis: Sri Lankan economy in dire straits | Professor Devarajan (March 12, 2022) Sri Lanka urgently needs to seek managed debt restructuring and a credible fiscal reform to make national debt sustainable, World Bank former Acting Chief Economist Professor Shanta Devarajan told the US-based CNBC news channel during a recent interview regarding Sri Lanka’s state of the economy.Devarajan is a Professor of the Practice of Development at Georgetown University’s Edmund A. Walsh School of Foreign Service. He was previously the Development Economics (DEC) Senior Director and World Bank Group former Acting Chief Economist. |
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It's a float, Confirms CB | (March 11,2022) Clearing the confusion and uncertainty surrounding Monday’s Central Bank announcement on allowing a more flexible exchange rate and the behaviour of the domestic foreign exchange market in response to it, the Central Bank yesterday clearly indicated that it had allowed a free float. |
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Sri Lanka has to raise policy rates to contain inflation, help rupee: | W.A. Wijewardena (March 10, 2022) ECONOMYNEXT – Sri Lanka needs further rate hike to contain monetary expansion and put the brakes on inflation but a rate hike is will also help support the rupee, W A Wijewardena, former Deputy Governor of the central bank said. An overall plan covering interest rates, exchange rates, and the budget was needed. |
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Economic Crisis in Sri Lanka: An Assessment | MP-IDSA (March 10, 2022) Sri Lanka is passing through an acute economic crisis due to depletion in foreign reserves which in turn has resulted in shortages of fuel, food, medicines, cement and other essential items in the country. Sri Lankan government is hopeful that with the policy measures initiated so far and with the improvement in the COVID-19 situation, it would overcome the crisis soon. The situation on the ground as well as the analyses of government's policy measures, global geopolitical-economic developments including the fallout of Russia–Ukraine war, nonetheless suggest that Sri Lankans are not going to feel the economic relief any time sooner. Opposition and public criticism against government's handling of the crisis is intensifying in Sri Lanka. |
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Debt restructuring and bridge financing for humanitarian purposes | W.A. Wijewardena (March 10,2022)
We view that Sri Lanka is at a critical juncture whether it can remain as a potentially growing country with the trust of international community, or otherwise. Sri Lanka’s foreign exchange reserves are at dangerously low levels (US$ 1.6 billion or less than one month of imports), especially given the US$ 6.9 billion in debt service payments coming due in 2022. |
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As Foreign Reserves Slip, Sri Lanka to Devalue Currency | Aljazeera (March 8 ,2022) Sri Lanka is effectively devaluing its currency as its foreign reserves dwindle, potentially accelerating the worst inflation surge in Asia as the nation struggles to service its debt and pay for imports. The Central Bank of Sri Lanka said in a statement late Monday that “greater flexibility in the exchange rate will be allowed to the markets with immediate effect.” The central bank also said it’s “of the view” that transactions would be capped at 230 rupees per dollar, about 12% below the current market level of 201.49 rupees. |
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Recommendations for Sri Lanka: Debt Restructuring & Bridge Financing | Study Group for Tripartite Cooperation (Febrary 7, 2022) We view that Sri Lanka is at a critical juncture whether it can remain as a potentially growing country with the trust of international community, or otherwise. Sri Lanka’s foreign exchange reserves are at dangerously low levels ($1.6 billion or less than one month of imports), especially given the $6.9 billion in debt service payments coming due in 20221. The acute shortage of foreign exchange is due to the COVID-19 pandemic, causing a sharp decline in tourism earnings, and reduced overseas worker’s remittances. It has also disrupted Sri Lanka’s own efforts to improve the debt sustainability. |
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Sri Lanka needs corrective economic package | W.A. Wijewardena (January 10, 2022) ECONOMYNEXT – Sri Lanka needs a corrective economic package to put the economy on a stable path top economist WA Wijewardena said as foreign exchange shortages continued to dog the country amid low interest rates and a high budget deficit. “We need a corrective policy package,” Wijewardena, who is an ex-Deputy Governor of the central bank said. “Sri Lanka has to take the bitter pill.” |
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A Pathfinder Perspective: The Nightmare Scenario: A Default on Sovereign Debt | CeylonToday (Dec 20, 2021) On December 17, 2021, Fitch downgraded Sri Lanka’s rating to ‘CC’, the lowest rating prior to default. With external reserves at around $1.6 billion and almost $1 billion in debt-service payments coming due in January 2022 (and $7 billion during the coming year), the country faces a very real possibility of a sovereign debt default. If this were to happen, what would be the consequences for the economy, the poor, and society? We can get an idea by looking at the experience of other countries that defaulted recently. Last year (2020) saw an unusually large number of countries defaulting on their sovereign debt. One of them, Lebanon—a country with sharp divisions along religious lines, a history of civil war, and an economy dependent on tourism and remittances—provides telling lessons for what might happen should Sri Lanka default. |
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Go to IMF without playing ostrich games | Professor Prema-chandra Athukorala (December 6, 2021) Delivering the keynote address at the International Conference on Business Innovation (ICOBI) hosted by Sri Lanka’s Green University, National School of Business Management, known as NSBM, Australian National University’s Emeritus Professor Prema-chandra Athukorala gave a fine warning to Sri Lanka’s economic policymakers. |
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Prema-chandra Athukorala: Economist Sri Lanka produced for the world | W.A. Wijewardena (October 11, 2021)
Prema-chandra Athukorala who held the position of professor of economics at the Amdt-Cordon Department of Economics of the Crawford School of Public Policy, Australian National University, celebrated his 70th birthday last week. Coinciding this, he went into retirement as a listed don on the payroll of the university. But given his crave for knowledge, and the inner fever for disseminating the same, he will never retire from academic life. He has been a paper mill publishing more than 550 quality papers in journals, book chapters, occasional papers, and manuscripts. The total citations he has received number more than 11,000 so far. These are in addition to the numerous newspaper articles he has penned. |
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A CRITICAL REVIEW OF SRI LANKA IN 2021 | Anila Dias Bandaranaike (August 29, 2021) Public discourse everywhere confirms that Sri Lanka is in a parlous situation on several fronts. This paper appraises our current situation against a proposed national development framework. National Resources Sri Lanka’s two key resources are its people and environment. People have had access to traditional, healthy nutrition and free preventive and curative health services, as well as two ancient languages (Sinhala, Tamil), a global language (English) and free education up to tertiary level. |
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Sri Lanka and the IMF: Myth and Reality | Prema-chandra Athukorala (July, 2021) Sri Lanka is now in the midst of its worst macroeconomic crisis since independence. Whether to seek financial support from the International Monetary Fund (IMF) in managing the crisis is a hotly-debated issue in Sri Lankan policy circles. The debate is largely ideologically-driven: strongly-held, opposing views are expressed without facts. The purpose of this paper is to demystify the debate by documenting and analysing Sri Lanka’s experience under IMF-supported macroeconomic adjustment programs, the economic circumstances that propelled the country to seek IMF support, and implications of these programmes for economic stabilisation and growth. |
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Rethinking Sri Lanka’s Industrialisation Strategy | Prema-chandra Athukorala ( June 29, 2021 to July 1, 2021) The history of industrialisation strategy in Sri Lanka is characterised by abrupt episodes of substantial changes associated with political regime shifts without settling to a stable path required for self-sustained growth. During the first decade after independence in 1948, development of industry was not a policy priority in Sri Lanka, unlike in many other newly-independent nations. From about the late 1950s, a combination of the influence of the development thinking at the time and growing balance-of-payments problems induced a policy shift towards State-led import-substitution industrialisation. |
Critics Failing To Understand Alternative Strategy Are Purveyors Of ‘Doom And Gloom’ | Dr. W.A Wijewardena (February 15, 2021)Central Bank Governor Deshamanya Professor W.D. Lakshman, in a press conference last week, is reported to have blamed the critics for failing to understand the economic policy measures being pursued by the Government. He has branded the critics as “purveyors of ‘doom and gloom’” and added that they have not understood the alternative economic strategy being pursued by the Government. According to him, “The Government has the economy well in hand and will ensure all debt repayments.” |