Dec 18, 2015 (LBO) – Sri Lanka might need IMF funds as money flow tightens in the future with global economic complexity but the government cannot expect a bail out by the IMF after acting irresponsibly, Professor Razeen Sally said in a forum held Thursday.
“There is a lot of talk, as in the past, about going to the IMF to get another standby loan,” Sally said.
“This may be unavoidable sometime during the course of next year, especially as money tightens and as global interest rates rise,” he said.
“The Sri Lankan culture of acting irresponsibly in terms of the nations finance ministry and expecting to be bailed out by the IMF, so the cycle can continue, is very damaging.”
He said the international institutes play their part in this and in another words there is too much aid money in prospects for Sri Lanka.
“In other words there is simply too much money in prospect for Sri Lanka from the IMF and other organisations and it prevents the sinner from repenting and it is an excuse to continue sinning,” Sally said.
“Consider the previous IMF standby agreement, which was clearly political, it was given under easy conditions, the Government pretended it was reforming and the IMF pretended this was so. But it postponed the problem,” he said.
“The main message is that the problem has to be resolved at home,”
“You cannot expect the IMF to come and sort out Sri Lanka’s problems. Given the message sent out by the last Budget it probably makes it more difficult as the Government clearly lacks credibility in the eyes of the IMF, the Ministry of Finance in particular.”
Sally added that Sri Lanka may face lot of challenges due to the global economic scenario.
“Economies that have high exposure to external debt, that have widening current account and fiscal deficits, that have weak currencies, are most vulnerable to a climate where international money is becoming more expensive. Sri Lanka is affected in many different ways,” he explained.
“It will benefit from lower fuel prices but at the same time other commodity prices have also weakened, non-oil commodity prices have fallen by about 17 percent and that has affected the plantation industry. So the currency is good from the export side but not so when it comes to foreign debt, especially when denominated in dollars,”
However a worsening economic climate is the familiar story for Sri Lanka, Sally said.
“So worsening global economic climate is a familiar story for Sri Lanka given very unbalanced macroeconomic policies and the changes are that this climate is going to be considerately worsen next year as interest rates continues to rise in the United States and other parts of the world,” he said.
“Debt funded growth spree based on consumption and imports and public investment is no longer tenable, and the argument or the fiscal consolidation to put it in the technical term but in playing language the repair for the finances is more urgent than ever,”
“Now I am repeating a familiar story here. But it is a story that has not been registered with the present government as well as the previous government.”