Sri Lanka’s IMF programme restrains populist measures with an election in sight

Sri Lanka will be tightening policy spaces in the monetary, fiscal and external fronts amidst subdued economic performance under the present economic and political situation in the country, Central Bank sources said.    

Private sector led growth is to be facilitated with prudent, consistent and far reaching reforms that support increased productivity in the economy, officials said.   

However, a  push to adopt more populist measures with an election in sight will be restrained by Sri Lanka’s programme with the IMF till mid-2019 and the challenge of early refinancing of the country’s medium term debt settlements from 2019, economic analysts said.  

Recent experiences have once again displayed the importance of strengthening the economy through structural transformation, while improving the country’s macroeconomic fundamentals, they pointed out. 

The postponement of much needed structural reforms will only lead to the Sri Lankan economy lagging behind its regional peers, amidst increased vulnerability to internal and external disturbances, the Central Bank said. 

Therefore, it is essential that such reforms are expeditiously implemented within a transparent framework for Sri Lanka to progress as an upper middle income economy where its human and physical resources are fully utilised in a more productive manner. 

In this hiatus, there will likely be a limited appetite for pushing ahead with economic reforms. As trade-offs are weighed between reforms and the possibility of an electoral backlash, politicians will be stuck between voter demands for the immediate accrual of benefits, while actual benefits are likely to be felt only after a lag, they emphasized.   

For the government, that lag time is narrowing swiftly. In this scenario, the temptation to switch from economic reforms to politics-as-usual will be high.  

"We hope that Sri Lanka will be more successful this time around in breaking its pervasive populist cycle to retain the gains on the macroeconomic front, they claimed.