Monday 17th June, 2024

The SLPP-UNP government is crowing about the release of the third tranche of the IMF loan, and has undertaken to fulfil some more bailout conditions such as the introduction of an imputed rental income tax. It has said the new tax will affect only the high-net-worth individuals, but the proof of the pudding is said to be in the eating. We will see what the new tax is really like only when it is implemented. The SJB and the JVP/NPP have vowed to renegotiate the IMF agreement in case of winning the next presidential election so much so that it is being speculated in some quarters that a regime change might lead to a derailment of the ongoing IMF programme.

The IMF has addressed some concerns being expressed about the continuity of its programme in view of the next election here. IMF Chief of Mission for Sri Lanka Peter Breuer has revealed what the IMF expects Sri Lanka to do. Pointing out that it had made good progress in terms of economic recovery, he told the media the other day that it was not yet out of the woods. He stressed the need to ‘safeguard the hard-won gains, and avoid slipping into another crisis’.

As for the concerns about the future of the IMF bailout programme here, he said the IMF’s perspective was that achieving its programme’s objectives was the key priority to give Sri Lanka a chance to emerge from the current crisis; the IMF was willing to listen to different views on how those objectives can be achieved and alternative proposals needed to be realistic and achievable within the timeframe of the programme. Reading between the lines, it will be a case of Hobson’s choice for Sri Lanka whoever wins the upcoming presidential election.

The IMF programme, at the present stage, requires Sri Lanka to do basically two things—expediting external debt restructuring and increasing state revenue substantially. These conditions make economic sense, and have to be met, however difficult they may be. Thankfully, external debt restructuring is said to be on course, but the revenue targets have not been achieved yet. The IMF has set guidelines, and the incumbent government or a future administration will have to meet the specified revenue goals.

What one gathers from Breuer’s observations is that the IMF does not mind the means to that end. If the government streamlines revenue collection by giving Inland Revenue, the Customs, the Excise Department, etc., a radical shake-up, while casting the tax net wide with action being taken to ensure compliance and curtail widespread waste, it will be able to achieve the revenue targets set by the IMF without heaping more burdens on the public. But it has opted for the easiest way out––squeezing the ordinary public dry.

The main presidential candidates from the Opposition have given an undertaking that they will continue with the IMF bailout programme but with some changes thereto. However, their economic policies, as outlined in their leaders’ speeches are populist and unrealistic; they are based on lofty ideals and clientelism rather than the harsh economic reality and drastic action that has to be taken to prevent the economy from going into a tailspin again.

The UNP is no different; it is giving away rice, etc., and promising much more in case of winning the next presidential election. The SJB is raising funds and spending part of it on donations such as buses and smart classrooms for schools. It is promising tax reductions and far-reaching welfare measures such as a mid-day meal programme for schoolchildren in case of being able to secure the executive presidency. The JVP/NPP is collecting funds both here and overseas while giving away nothing. It is only promising to create what can be described as a welfare state if it is voted into power.

Given the situation the country finds itself in and the tough bailout conditions it has to fulfil to emerge from the current economic crisis, all chances are that the prospective presidential candidates’ promises of delivering the public from suffering overnight will be pie in the sky.