Celebration of debt

Thursday 27th June, 2024

Sri Lanka has come to such a pass that its rulers and their supporters are celebrating the signing of a debt restructuring agreement, which they flaunt as an achievement. The leaders of successive governments which ruined the economy by indulging in corruption, wasting resources, and borrowing recklessly, thereby rendering the country’s debt unsustainable are now quarrelling over how to revive the economy. Never do they come together for the sake of the country.

The government is trying to shore up its crumbling image with the help of the debt restructuring deal, which it makes out to be a silver bullet that will help break the back of the economic crisis. The Opposition has condemned the agreement between Sri Lanka and its external creditors as a sellout because the conditions on which it was inked are not favourable to Sri Lanka; it seems to have forgotten that beggars are no choosers. Both sides are stretching the truth to bolster their claims and mislead the public ahead of a crucial election.

The International Monetary Fund (IMF) tied the progress of its bailout programme to Sri Lanka’s debt restructuring among other things. So, yesterday’s agreement could be thought to mark a turning point in the country’s economic recovery process, but it cannot be considered an achievement worthy of celebration. Information about the agreement at issue has been coming in dribs and drabs, and what it is really like will be known only when it is presented to Parliament. But it has already become a fait accompli, and debates thereon will be an exercise in futility.

The Sri Lankan economy is not yet out of the woods, as the IMF has rightly said. Much more remains to be done to straighten it up. The agreement on external debt restructuring will give Sri Lanka a breather, which, to use local slang, could be considered an ‘interval in hell’. The problem of debt unsustainability will not go away; a Herculean effort is needed to tackle it and put the economy back on an even keel. Sri Lanka’s debt-to-GDP ratio, which went above 120% in 2022, has shown signs of decreasing, but it will have to be reduced drastically for debt sustainability to be achieved; then only will the country’s credit ratings improve. Difficult times are far from over.

The government seems to think it can end the country’s bankruptcy by means of a presidential proclamation to that effect, but the Opposition says it is the international rating agencies that will determine the creditworthiness or otherwise of a nation. In a bid to drive their points home, government politicians and their rivals are peddling various arguments, which range from the sensible to the ludicrous, so to speak.

What matters most, in our book, is not the claims of the government or the Opposition about the state of the country’s economy and recovery strategy but the international opinion thereof.

The government is in seventh heaven. The Opposition is worried that President Ranil Wickremesinghe will use the debt restructuring agreement as a launch pad for his presidential election campaign. The President is bound to do so. He has sought to gain political mileage from the fact that queues for essentials, especially fuel, and protracted power cuts and politico-economic uncertainty have become things of the past, and state revenue is on the rise. But these improvements have come at a tremendous cost; taxes and tariffs have been increased exponentially, and the cost of living has gone through the roof.

An opportunity presented itself in 2022 for the Opposition politicians to take up the challenge of taking over the reins of government and bringing order out of chaos. Only Wickremesinghe came forward, and brought about some tangible results. But there is a long way to go before the economy regains stability, and it behoves the government and the Opposition to sink their political differences and help the country come out of the present crisis. One can only hope that one is not hoping against hope.